Intention to generate surplus when renting out a commercial property.

November 25, 2019

Losses from a rental are to be recognized for tax purposes if the landlord intends to generate a surplus over the expected duration of the rental. In the case of residential leases, this is generally assumed to be the case if the lease is intended to be permanent. However, this presumption does not apply to commercial real estate. Instead, the intention to generate a surplus must always be determined on a case-by-case basis. This is based on a period of 30 years.

A GbR generated income from the lease of a hotel-guesthouse which it had acquired in 1993. After termination of the lease agreement, the GbR carried out extensive renovations and extensions and leased the new hotel and restaurant complex to a Betriebs-GmbH. The tax office determined a total loss for a 30-year forecast period since acquisition. As a result, the tax office no longer recognized the claimed income-related expense surpluses for previous years.

The Federal Fiscal Court (Bundesfinanzhof), on the other hand, ruled that a different property was created as a result of conversion and expansion. A new forecast period began for this property, for which the intention to generate surplus is to be reassessed.

BFH, Urt. v. 19.02.2019, IX R 16/18, BFH/NV 2019, P. 804