Extended property reduction

One day too early precise - planning and good advice are essential

The extended deduction enables companies that manage real estate only, to exempt income from the management of their own real estate (letting) from trade tax.

However, the statutory regulations and the case law of recent years have resulted in strict requirements that must be met in order to apply the extended reduction.

An essential requirement is that the company exclusively manages its own real estate during the entire taxable period In the BFH ruling of October 17, 2024 (III R 1/23), the last remaining property of the corporation in question was sold on December 30.

This means that on one day of the assessment period (31.12.), the plaintiff did not pursue the favored activity (management and use of its own real estate). The “technical” exception, i.e. a transfer on 31.12, 23:59, in which the extended reduction is to be granted by way of exception, does not apply here.

Whatever the reasons for the sale taking place on 30.12, the following measures, among others, could have been taken to prevent the elimination of the extended reduction:

1. retention of a very small part of the real estate assets

2. acquisition of small real estate assets before the sale

3. (retroactive) conversion to 30.12 and thus termination and shortening of the assessment period (this variant would also have been possible retrospectively).

(Retroactive) conversion to 30.12 and thus termination and shortening of the tax period (this variant would also have been possible retrospectively) This case shows very clearly which actually obvious consequences could have been avoided with good planning and advice.

If you have any questions on these or other special tax issues - just get in touch.

‍