Selling agricultural land: This is important to note

How can you optimize your tax burden when selling agricultural land?

Here are tips for selling a business or individual areas from private assets.

who Selling agricultural land usually generates a high profit.

The rising space prices and the sometimes very low book values in the balance sheet allow the tax office to earn money every time. The 1st part of our two-part article shows you in detail what you have to pay attention to when you use areas from the Do you want to sell private assets or a business as a whole and how is yours? tax load can be optimized.

Agricultural land can usually be sold quickly and easily: land is scarce and many interested parties are desperately looking for it. A buyer who pays the desired price can be found quickly. The bottom line is that there is a quick profit on the sale Tax burden of up to 40 percent and more. Annoying when the proceeds are used to invest or to pay off debts and there is actually no more money "left" for the tax office. In the worst case, those affected have to sell more land, which is a new one tax burden entails.

In order to avoid this, it is advisable to to calculate the tax consequences. But the Tax burden depends on the individual case, so it is not necessarily for everyone agricultural area equal.

It may change when selling

trade in private wealth
about a company as a whole or else
about business assets as current profit

areas in private assets

Not in every case is one agricultural land Tax- related business assets. Anyone who has purchased land in the past in order to lease to third parties, these areas could assign to the private assets and income from private gem Letting. § 21 income tax explain Act (ITA). An area that is left to a GbR for management, in which the seller himself has a stake, does not represent private assets, but leads to the necessary special business assets.

In some cases, the wife (or, in the opposite case, the husband) also owns land, for example as a wedding present from the parents. If these areas are left to the spouse for management, this should definitely be done in the form of a written lease agreement, and under conditions that are also customary among strangers. In this way, the area can remain private property.

Leaving them free of charge may result in a so-called spouse-internal company: Because even without a separate articles of association, a partnership (GbR) is actually created if both spouses are work on the farm and the wife makes a significant part of the land available without separately agreeing to this in a contract. According to a circular from the Federal Ministry of Finance dated December 18, 2009, the spouse's share of the space is considered to be significant if it is more than ten percent of the shared space. This gives them the property of a necessary special business asset with all tax consequences and are therefore no longer private assets.
The statutory speculation period of ten years (§ 23 EStG) applies to areas of private assets. That means the sale is tax- free if the so-called retention period of more than ten years has been fulfilled.

Note the speculation period

It is worth taking a closer look at the duration of ownership before going to the notary, because ten years is a rigid limit. An ownership period of nine years and 364 days triggers a 100% ownership tax liability, while the disposal after ten years and one day is completely tax-free.

For the calculation of the time of ownership, it is not the actual transfer of ownership that matters, but the time of the conclusion of the contract (obligatory transaction)! This means that extreme caution is required in the case of preliminary contracts or the like. For owners who have received the area as a gift or inheritance, the periods of ownership of the transferor are taken into account. The period does not start to run again. The withdrawal from one’s own business assets or those of the testator can also be regarded as the beginning of the period.

If it is not a usable area but a residential building that is for sale, there is no speculative profit if the owner only lived in the house between purchase and sale. Within the ten-year period, a tax consultant should be consulted before any area change. Because even without money flowing, a transfer of land can represent a sale transaction against payment. For example, if the transfer serves to settle the spouse in divorce proceedings or as a settlement for deviating heirs.
And: A speculative gain can also result from a private exchange of land! For example, if a farmer buys an area for a total of EUR 150,000 and exchanges it a few years later for another property with a market value of EUR 250,000, there is a taxable capital gain of EUR 100,000.
If areas are exchanged during a land consolidation without additional payment (state act of sovereignty), there is no paid sale transaction and no speculative profit.

Be careful with building land

If private areas are designated as building land and the speculation period has already expired, this is usually tantamount to winning the lottery for the owner. Here it is then necessary to avoid any behavior that turns a private sale into a commercial real estate transaction! The areas then become business assets of the trading business, namely current assets, so that there is not even a benefit under Section 6b EStG (more on this in the 2nd part of this article).

The seller should absolutely refrain from any activity that goes beyond the mere subdivision of the area. That means no development of building land or even interference in the land use planning of the municipality. Even within the speculation period, a commercial property trade can arise, with all the consequences (including trade tax). This occurs, for example, when land is acquired with the intention of immediate sale or with the intention of erecting a building and then selling the property immediately. Even if the so-called three-property limit is exceeded, i.e. if more than three properties are bought and sold within five years, the tax authorities assume commercial real estate trading.

Sale of a business as a whole

If the affected areas do not belong to private assets but to business assets, there is always a taxable capital gain.

But here are two possibilities to distinguish:

Profit from the sale of the business as a whole or from the closure of the business

Running profit

One speaks of a sale of a business as a whole (§§ 14 and 16 EStG) if all essential business bases of a business or part of a business are sold to a buyer in a single transaction. If all essential operating bases are sold to several buyers in one step or in a short period of up to six months or transferred to private assets, this is referred to as a business closure.
Lessors of complete farms can use the lessor's right to choose, i.e. continue to keep the areas as business assets. However, the lessor can declare the business closure (§ 16 Para. 3b EStG) at any time. The gain from giving up is tax-deductible. The task can be declared retrospectively for up to three months. The market values of all business assets, minus the book values, result in the profit from the abandonment.

However, the closure of the business should not be declared to the tax office lightly or on one's own authority, because the profit from the closure can be high and the tax consequences can hardly be overlooked by the layperson. In addition, the abandonment of operations applies not only to land, but to all assets of the business - i.e. buildings, operating facilities, machines and the like must also be taken into account when calculating the profit from the abandonment.

But what are the tax advantages of selling or giving up a business? In §§ 14, 16, 34 EStG, the legislator has made regulations to enable the entrepreneur to discontinue or sell his business at a tax-privileged rate at the time of his retirement. For this purpose, a separate sale or abandonment profit must be determined in order to separate this from the current profit of the business.

Use the allowance

On the one hand, the tax office grants an allowance of 45,000 euros if the taxpayer is over 55 years old or permanently unable to work. Everyone only gets this allowance once in their life and it has to be applied for separately from the tax office. However, the exempt amount is reduced by the profit from the sale or abandonment that exceeds EUR 136,000.

Here's an example calculation: The task win is 150,000 euros. The profit exceeds EUR 136,000 by EUR 14,000, i.e. the allowance is reduced by EUR 14,000 and is then only EUR 31,000 (EUR 45,000 less EUR 14,000). The taxable gain from giving up is therefore 119,000 euros (150,000 euros minus 31,000 euros).

The tax office no longer grants an exemption from a sale or abandonment profit of 181,000 euros. In the case of the above-described voluntary declaration of business closure for leased businesses, only very small businesses receive the exemption. However, the exemption does not only apply to agricultural businesses, but also for commercial businesses or businesses with income from self-employment. For example, if you own a holiday home that is operated as a hotel and is a commercial operation, you should consider applying for an exemption in the event of a sale.
If the profit exceeds the exempt amount or if no exempt amount can be granted for other reasons, the remaining profit is taxed at a reduced rate (Section 34 (1) EStG).
If the taxpayer has reached the age of 55 or is permanently unable to work, the remaining profit can even be taxed at only 56 percent of the normal tax rate upon request
(Section 34 (3) EStG).

Conclusion

Not every sale of land leads to normal ones Income from agriculture and forestry. In return, not every gratuitous transfer of land is tax-free. The devil is often in the details. If you want to sell, you should seek professional advice in order to at least be able to assess the tax consequences.