date | theme

5 November 2020 | The advantages of a GbR when buying a commercial property

24. February 2021 | Rental income tax-free: Debt financing reduces profit

1 April 2021 | Deposit of leased properties in KG/SBV: generate new depreciation (§ 6 para.) 1 No. 5 EStG / § 7 para 1 p. 5 EStG

25. May 2021 | Transfer of rented property to partnership – What needs to be considered? (this contribution)

You hold a property that you are currently renting out in private property. Then they generally earn income from renting and leasing within the meaning of § 21 (1) no. 1 EStG. You now want to sell the rented property to a partnership in which you are involved, for example an OHG, KG or GmbH & Co. Kg., which will continue the rental. Due to the participation in the company, one might think that the shareholder continues to earn income from renting and leasing. However, the Bundesfinanzhof (BFH) has decided that this is only the case under certain conditions. We explain when this is the case, what consequences result from it and what must be considered during the transmission.

If you, as a private person, rent a property and earn income in the process, you will in principle earn rental income within the meaning of § 21 (1) no. 1 EStG. According to the BFH, however, this assessment can change retroactively in certain circumstances by the transfer to a partnership despite its own participation in this company. The income-generating intention is of central importance.

In § 2 paragraph 2 EStG, the Income Tax Act makes a fundamental distinction between surplus income and profit income (so-called dualism of income determination). The reason for this dualism is, among other things, that the complicated accounting should only be expected of people who have business experience. Consequently, the legislator has specified by typology that only farmers and foresters, traders and self-employed persons have to earn and account for profits. In order to achieve surplus income or profit income, the taxpayer must have so-called income intent. This is divided into profit intention for profit income and surplus intention for profit income. Intent to make a profit is when the taxable person intends to make a profit from the activity. On the other hand, the income-generating intention means the intention of the activity to generate a surplus of revenue over advertising costs. Therefore, these two intentions differed from each other. According to BFH, this distinction is of central importance in the context of the transfer of a leased property to a partnership.

An asset management partnership is a company that exclusively uses capital assets or assets. Often these assets are real estate. Asset management is assumed if the assets are invested for a regular longer-term maintenance and fruit production and redistribution of the assets takes a back seat (§ 14 sentence 3 AO). A partnership managing assets therefore generates surplus income. Therefore, the shareholders of the partnership cannot be co-entrepreneurs within the meaning of § 15 (1) no. 2 EStG. Consequently, in the case of an asset management partnership, there is no need for a profit intention but a surplus intention.

A commercial partnership exists if its activity meets the characteristics of § 15 (2) EStG. Consequently, the company must participate independently, sustainably and profitably in the general economic traffic and, moreover, it must not carry out pure asset management or professional or agricultural or forestry activities.

Commercial partnerships are regulated in § 15 paragraph 3 EStG. This rule stipulates that the partnerships listed in § 15 (3) no. 1 and § 15 (2) EStG are in principle to be treated as commercial enterprises. In order for a partnership, which in itself does not pursue a commercial activity, but an asset management or freelance activity, according to § 15 (3) no. 2 EStG constitutes a fictitious business, the following conditions must be met: