(2022) Who is eligible for the special depreciation under Section 7b of the Income Tax Act?

Those who build new flats should be able to save on taxes. The "Act on Tax Incentives for the Construction of New Rental Housing" provides for a new temporary special depreciation under Section 7b of the Income Tax Act to stimulate investment activity.

The special depreciation contributes to this by specifically promoting the construction of new rental flats. The regulation supports not only flats in connection with the construction of new buildings but also measures to create new flats in existing buildings. The measure is also intended to provide incentives in areas with limited space.

The 7b special depreciation amounts to

• in the year of acquisition or construction: 5% of the acquisition/construction costs
• in the following three years: 5% each up to 2,000 Euro per sqm of living space

In addition, linear depreciation of 2% p.a. can be deducted, although this is based on a different assessment basis, namely the actual acquisition or construction costs (Section 7 (4) of the Income Tax Act).

As a comparable regulation such as Section 7 (1) sentence 4 of the Income Tax Act is missing, it can be assumed that the special depreciation in the first year does not have to be reduced on a pro rata basis in the case of acquisition or construction during the year.

Within the depreciation period of 4 years, 28% of the eligible acquisition or construction costs can thus be taken into account for tax purposes (4 x 5% and 4 x 2%). The depreciation from the 5th year is calculated as residual value depreciation in accordance with Section 7a (9) of the Income Tax Act: residual value divided by 46 years.

Conditions at a glance

• 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.
• A specific deadline must be observed for the special depreciation - and this deadline is 31/12/2021! Only investments for which a building application is submitted between 1/9/2018 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 constructed 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 dated 21/9/2021, IV C 3 - S 2197/19/10009 :009).

Only new flats are subsidised

Special depreciation is only possible if new flats are created through construction measures or if they are acquired by the end of the year of completion. Eligible are

• flats in new or existing buildings,
• other parts of buildings that are independent immovable assets (buildings),
• freehold flats,
• rooms in part ownership. Part ownership is the separate ownership of rooms in a building that are not used for residential purposes, in conjunction with co-ownership of the communal property to which they belong.