Tax deductibility of renovation costs in a rented medical practice
March 20, 2013 | 40,00 EUR | answered by Dr. Yanqiong Bolik
Good day, in a medical practice rented out by me as a pharmacist - bought 4 years ago for 180,000 € - extensive renovation and remodeling measures are to be carried out, as a second doctor is now joining the practice. Question: How could the high estimated renovation costs of approximately 160,000-175,000 € be tax deductible? It may also be important to note that neither windows nor heating are affected by the renovation.
Dear inquirer,
Thank you for your inquiry, which I will gladly answer taking into account your input and the rules of this platform.
Please note that my explanation is based on the facts presented, and that adding, omitting, changing information, or the ambiguity of information can alter the tax result. Please be aware that this does not replace individual comprehensive advice.
In practice with rental and leasing, there are many borderline cases where the distinction between maintenance expenses, which can be deducted as operating expenses immediately, and production costs, which must be spread over the total useful life, often leads to disputes between the taxpayer and the tax authorities. In its recent judgment (IX R 39/05), the Federal Fiscal Court (BFH) has now ruled in favor of the taxpayer: It concerned the conversion of a large office space into four individual offices using plasterboard partition walls and the renewal of the electrical installation in the rooms affected by the construction work. The BFH argued that a mere redesign of rented premises by moving and removing partition walls is not sufficient as long as the newly added building components do not give the overall building a technical character, e.g. if they replace parts that are determining for the useful life (cf. BFH judgment of December 3, 2002 IX R 64/99, BFHE 201, 148, BStBl II 2003, 590). On this basis, the fact that the installation of such partition walls can be beneficial for rentability alone cannot lead to the assumption of production costs (cf. BFH judgment of October 13, 1998 IX R 38/95, BFH/NV 1999, 603). Therefore, the renovation costs could be deducted immediately as maintenance expenses.
Based on your description, subject to a complete examination, your circumstances could be comparable to the case in the aforementioned judgment. However, please understand that a final assessment based on the information provided and taking into account your input is not possible. I recommend you to refer to this BFH judgment and assess whether your project is comparable to the case in dispute. It is also important to note that while tax authorities often follow BFH decisions, BFH jurisdiction does not have the same force as a statutory provision. If you want absolute certainty, I recommend seeking a binding ruling from your local tax office.
I hope I could be of assistance.
If there is still any uncertainty, please feel free to use the follow-up function.
Best regards,
Dr. Yanqiong Bolik
Tax consultant
Bildstöckle 6, 70567 Stuttgart
Tel: +49 (0)711 / 2132 1815
Email: steuer@zdbz.de
www.steuerberatung.zdbz.de
