BFH ruling: property sales are not always commercial!

BFH ruling: property sales are not always commercial!

The Federal Finance Court (BFH) recently decided in a groundbreaking ruling that a high number of property sales outside the five-year period does not automatically mean a commercial property transaction. In the decision, which was based on a case involving a real estate GmbH, the BFH confirmed the tax court's opinion that the intention to sell cannot be determined solely by the number of properties for sale. In particular, it was emphasized that the three-property limit is merely an indication and is not a rigid regulation that should serve as the sole evidence of a commercial real estate transaction.

The case revolved around a real estate GmbH that acquired several rental properties in 2007. After one of the two managing directors died in 2012, the GmbH sold a total of thirteen properties in 2023. The tax office was of the opinion that the GmbH had been commercially active from the beginning because the number of sales had reached a high number.

The legal context

The legal basis of the decision is based on the so-called three-property limit, which states that a commercial real estate deal can be assumed if more than three properties are sold within five years. However, the tax court found that a high number of sales does not necessarily prove the intention to sell at the time of acquisition. The BFH confirmed this in its decision of March 20, 2025 (ref. III R 14/23).

The ruling brings into focus the importance of additional evidence in order to obtain certainty about commercial intent. In this specific case, the unexpected death of a shareholder was taken into account as a special circumstance. The tax court also made it clear that the GmbH had met the requirements for an extended reduction under the applicable tax regulations.

Original telephone in detail

The decision that A GmbH did not engage in commercial real estate trading was supported by the finding that no property was sold within the first five years. The divestitures only took place in the sixth year and then two more in 2015. The tax court also took into account the overall development of property purchases and sales and stated that there was no evidence of a conditional intention to sell during the five-year period.

In summary, it can be said that the BFH's decision and the tax court's reasoning represent an important signal for companies operating in the real estate sector. It remains to be seen how this case law will affect the tax treatment of property dealers in the long term. For many, this could mean that they can continue to operate within the legal limits even without falling below the three-object limit.

Incidentally, the tax court's ruling does not contradict previous decisions of the BFH, which underlines the importance of such individual case considerations. Accordingly, it is also important to consider that the special features of each individual case are crucial for the tax assessment.

Further information can be found in the detailed decisions of the relevant institutions: STB Web and Federal Finance Court.