Owners can benefit from tax on rented properties by depreciating them. This usually works linearly over the entire service life. But not always.
Owners can depreciate a rented property over its useful life. Normally with a straight-line depreciation of two percent per year. After 50 years, an object would be completely depreciated.
But be careful: With every change of ownership, the useful life begins anew. An appraisal can prevent that.
As a rule, the amount and duration of depreciation are recalculated with each sale. The actual useful life of a building over time can far exceed the statutory useful life of 50 or 40 years, says Daniela Karbe-Gessler from the Taxpayers’ Association.
But if you can prove a shorter remaining useful life by means of an expert opinion, you can benefit from this for tax purposes – thanks to higher depreciation. This is the result of a judgment (case no.: 1 K 1741/18 E) by the Münster Finance Court, to which the Taxpayers’ Association refers.
In this case, a landlord had purchased a property for which an expert appraisal to determine the property value was available. According to the appraisal, the building had a remaining useful life of 30 years.
The owner then included an annual depreciation of the building of 3.33 percent in his income tax returns instead of the usual two percent as income-related expenses from renting and leasing. The tax office only took into account the lower depreciation rate. However, the finance court later agreed with the landlord.
When making a new purchase, landlords should therefore check whether an expert opinion certifies a shorter useful life, advises Daniela Karbe-Gessler. A normal appraisal is sufficient for the recognition of higher depreciation.
It is also important to note which point in time counts as the date of purchase. A property is purchased when ownership, risk, benefits and burdens are transferred. This transition date is agreed in the notary contract and must also be in the year of completion.
(This article was first published on Wednesday, May 11, 2022.)
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