Depreciation Balance When Selling a Business: How Your Equipment Is Taxed

If your company has depreciated machinery, fixtures, vehicles or other equipment over time, there's typically a so-called depreciation balance in the accounts. When selling a business — or on closure — that balance must be finally settled under Danish depreciation rules, and it can have a direct, and sometimes surprising, effect on your tax.

What is a depreciation balance?

When you buy equipment for the business, you can't deduct the whole expense in the year of purchase. Instead, the amount is depreciated gradually over several years using the balance method: all equipment is pooled on one combined balance, which you can write down by a percentage each year under the tax rules. The balance therefore represents the part of your equipment investments you haven't yet received a tax deduction for.

What happens to the balance when you sell?

In the year the business is sold or closes, no further depreciation may be taken on the balance — neither in the closure year itself nor later. Instead, the balance must be finally settled by comparing it to what the equipment is actually sold for:

• If the sale amount is higher than the remaining balance, the difference becomes a taxable gain (often called "recaptured depreciation") — in other words, you've received more in deductions over the years than the equipment turned out to be worth at sale.
• If the sale amount is lower than the balance, the difference instead becomes a deductible loss.

A worked example

Say your business's depreciation balance at the start of the year is DKK 250,000, and during the year you buy additional equipment for DKK 40,000. The combined balance before the sale is therefore DKK 290,000. If the equipment is then sold for DKK 340,000, the DKK 50,000 difference is a taxable gain. Had the equipment instead only sold for DKK 220,000, the remaining DKK 70,000 of the balance would become a deductible loss.

What if the balance is already negative?

If the business has, over the years, sold equipment for more than the balance stood at, the balance can already be negative before the final sale takes place. In that case, the calculation is reversed: the sale amount is added to the numerical value of the negative balance, after which any new acquisitions during the year are subtracted to find the final gain or loss.

What if not all the equipment is sold by year-end?

If a positive balance remains at year-end because not all the equipment has been sold yet, the balance is simply carried forward to the following year — no tax adjustment happens until the last pieces of equipment are actually disposed of, or the balance is otherwise finally settled.

Are you selling the whole business, or just part of it?

The rules distinguish between whether you run one combined business, or several businesses side by side. If you run only one business and sell off individual assets from it, that's normally treated simply as an ongoing adjustment of the balance — not a full closure. If you run several businesses, though, and one of them closes entirely, that specific business's balance must be finally settled on its own, independently of the others. The assessment of whether it's genuinely one business or several depends, among other things, on whether combined accounts, a combined balance and combined administration are maintained — not just on what the businesses are called externally.

A special case: leased-out equipment

If the business has leased out equipment to others — for example as part of a leasing activity — a special rule applies: if the acquisition cost of leased-out equipment hasn't already been deducted, and it isn't part of the ordinary balance, the undepreciated portion can instead be deducted directly in the closure year.

Why is this important to know before listing your company for sale?

The tax effect of recaptured depreciation can catch sellers off guard if they focus solely on the purchase price for the business. If you've depreciated aggressively over the years on machinery and fixtures, a sale at a price above the book balance can trigger a bigger taxable gain than you initially expect. It's therefore a good idea to have this calculation done with your accountant well before you negotiate a price — ideally as part of your broader sale preparation, and with a realistic picture of your normalized EBITDA, so you know the full tax consequence before moving forward.

Frequently asked questions

Is "recaptured depreciation" the same as a share gain?

No. Recaptured depreciation arises specifically from selling equipment in an asset purchase, and is taxed under depreciation rules — that's different from taxation of a share gain in a share purchase. See the difference in our article on asset purchases vs. share purchases.

Can I avoid taxation on recaptured depreciation?

Not generally, but the specific tax effect depends on how the deal is structured, and whether tax succession is possible. This is one of the points where professional advice early in the process can make a real difference.

Do the rules only apply on a full closure of the business?

No. The rules can also be relevant if you just sell individual pieces of equipment out of an ongoing business — the difference is whether it triggers an immediate settlement, or just adjusts the ongoing balance.

Unsure how your business's depreciation balance will be affected by a sale? Book a no-obligation call, or read our general walkthrough of tax and VAT when selling a business.