What is depreciation?
With the so-called depreciation, you can deduct the acquisition 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, like renovation costs and ancillary costs, counts as income-related expenses 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.
For a purchase price excluding land of 200.000 Euro, the taxable income is reduced by 4.000 Euro (2 per cent of 200.000 Euro). Assuming a personal tax rate of 35 per cent, the tax saving is therefore 1.400 Euro per year. If the property is bought or sold during the year, the annual depreciation is applied on a pro rata basis.
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 acquisition or production costs up to 2,000 Euro per square metre of living space in the year of acquisition or production and the following three years. In addition, the linear AfA of 2% p.a. can be deducted, which, however, is based on a different assessment basis, namely the actual acquisition 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. Not only new residential construction is subsidised, but also 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 December 2021! Only investments for which a building application is submitted between 1 September 2018 and 31 December 2021 are eligible. If a building application is not required, the building notice must be submitted by 31 December 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 for the specified period (BMF letter of 21 September 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 takes place after 31 December 2021. However, the special depreciation can be claimed for the first time in the year of completion or acquisition. For a building completed in 2022 based on a building application/building notice submitted in 2020 and acquired in the year of completion by means of a purchase contract, the purchaser can claim the special depreciation.
- The funding period is limited not only with regard to the date of the building permit application or building notice but also with regard to the year of the last possible claim for the 7b special depreciation. 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, which is the aim of the regulation.
(2022): What is depreciation?
What does depreciation according to section 7 (4) of the Income Tax Act mean?
Depreciation according to § 7 para. 4 EStG refers to straight-line depreciation that can be used for any building that is rented out or used for business purposes. For houses built by 31 December 1924, the buyer can deduct 2.5 per cent for 40 years. For properties built after 31 December 1924, buyers can deduct two per cent of the purchase costs excluding land as business expenses for 50 years. The depreciation period starts anew with each buyer, even if the previous buyer has already depreciated the building. Depreciation begins in the year of purchase or completion – but only on a pro rata basis for that year.
(2022): What does depreciation according to section 7 (4) of the Income Tax Act mean?
What does depreciation according to section 7 (5) of the Income Tax Act mean?
Depreciation according to § 7 para. 5 EStG refers to the declining balance depreciation, which allows builders or buyers to depreciate new buildings or flats at a high rate in the first few years. Declining balance depreciation is no longer possible for properties with a building application or purchase contract from 1 January 2006. Since then, only straight-line depreciation has been permitted.
For previous purchases, the following depreciation rates apply:
Building application/purchase contract from 30 July 1981 to 28 February 1989 and from 1 January 1996
- First 8 years: 5 percent
- Next 6 years: 2.5 percent
- Next 36 years: 1.25 percent
Building application/purchase contract from 1 January 2004 to 31 December 2005
- First 10 years: 4 percent
- Next 8 years: 2.5 percent
- Next 32 years: 1.25 percent
Building application/purchase contract from 1 March 1989 to 31 December 1995
- First 4 years: 7 percent
- Next 6 years: 5 percent
- Next 6 years: 2 percent
- Next 24 years: 1.25 percent
(2022): What does depreciation according to section 7 (5) of the Income Tax Act mean?
