Tax on profit from real estate in Zurich: fair market value of 20 years ago and loss offset

If a company has operating losses, the question arises whether these operating losses can be offset against the profit from the sale of real estate.

The off-setting of losses against an extraordinary profit from the sale of real estate is in principle possible, whereby as a first step the losses are to be offset against the ordinary operating profit. Furthermore, the losses are then offset against the reversed depreciation (difference acquisition value - book value) and only as a last step against the capital gain (difference book value - sales price) which would be subject to real estate profit tax.

If real estate is held for more than 20 years, the market value of 20 years ago can be used instead of the historical acquisition value. The increase in value between the historical acquisition value and the market value of 20 years ago is thus not taxed, which is why this is referred to as a taxation gap provided for by law.

However, the part of the profit that is not subject to real estate profit tax, due to the market value of 20 years ago, must also be taken into account for the off-setting of losses. According to the practice of the Canton of Zurich, the operating losses are first offset against the profit which is generally exempt due to the taxation gap (if claiming the market value of 20 years ago). Consequently, the losses are offset against the actually tax-exempt difference between the historical acquisition value and the market value of 20 years ago.

In the Canton of Zurich, the loss off-setting for real estate profit tax purposes is an "optional provision". Accordingly, the taxpayer may waive the loss off-setting in order to continue to benefit from the taxation gap. A waiver makes sense in particular if the operating losses can be offset against other taxable profits in the future. In intercantonal circumstances, however, there is no right of choice.

A careful analysis of the given tax law opportunities is indispensable in any tax planning.