Three object border

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The three-property limit was developed by the Federal Fiscal Court to differentiate tax-free income from private asset management and taxable income from commercial operations ( Section 15 EStG ). It states that commercial property trading - and not private asset management - regularly occurs if a property owner sells more than three “objects” within five years of their acquisition, production or fundamental modernization. The profits from the sale result in commercial income . Depending on the amount of profit, the tax office not only sets income tax , but also the municipality's trade tax .

Special features apply to long-term previous ownership and legal succession:

  • If plots of land that have been acquired and used by the seller are sold for at least ten years by renting or for their own residential purposes, this is still private asset management regardless of the number of objects sold.
  • The sale of inherited property is generally not covered by the three-property limit.

If the property falls below the three-property limit, only a possible speculative gain in accordance with Section 23 (1) No. 1 EStG is taxable when real estate is sold within the ten-year period.