(2021) What is depreciation?

With the so-called depreciation, you can deduct the purchase or production costs of your building, flat, or construction measure as income-related expenses over several years. The annually deductible part is referred to as depreciation or depreciation for wear and tear (AfA).

Depreciation is considered income-related expenses, like renovation costs and ancillary costs, and thus reduces your tax burden. Depreciation is possible for rented or commercially used houses and flats. It is important to note that only the value of the building can be depreciated - the value of the land does not depreciate for tax purposes.

For properties built after 31 December 1924, buyers can deduct two per cent of the purchase costs excluding land from their taxes each year for 50 years.

 

To stimulate the construction of new rental flats in the lower and middle price segments, the legislator introduced a new temporary special depreciation under § 7b EStG in 2019.

• The 7b special depreciation amounts to 5% of the purchase or production costs up to 2,000 Euro per square metre of living space in the year of purchase or production and the following three years. In addition, the linear AfA of 2% p.a. can be deducted, although this is based on a different assessment basis, namely the actual purchase or production costs (§ 7 para. 4 EStG).
• Only buildings with construction costs not exceeding 3,000 Euro per square metre of living space are eligible. However, only construction costs up to a maximum of 2,000 Euro per square metre of living space are eligible for funding. The subsidised property must be rented out for at least 10 years; however, there is no rent cap. The funding is not only for new housing construction but also for the creation of new flats in existing buildings, e.g. attic conversions or extensions and additions.

A specific deadline must be observed for the special depreciation - and this deadline is 31.12.2021! Interested parties must act quickly! Only investments for which a building application is submitted between 01.09.2018 and 31.12.2021 are eligible. If a building application is not required, the building notice must be submitted by 31.12.2021. For rental flats that can be built without a building application or building notice under building regulations, the start of construction work can be used as the reference point (BMF letter dated 21.09.2021, IV C 3 - S 2197/19/10009 :009).

• The timing of completion is not relevant for claiming the special depreciation. The special depreciation can therefore also be claimed if completion occurs after 31.12.2021. However, the special depreciation can be claimed for the first time in the year of completion or purchase. For a building completed in 2022 based on a building application/building notice submitted in 2020 and purchased in the year of completion, the buyer can claim the special depreciation.
• The funding period is limited not only in terms of the date of the building permit application or building notice but also in terms of the last year the 7b special depreciation can be claimed. The special depreciation can be claimed for the last time in 2026. From 2027, 7b special depreciation will no longer be possible, even if the depreciation period has not yet expired. This is intended to accelerate the creation of housing as intended by the regulation.