Financial benefits for foreigners who purchase and renovate a listed building in Germany.
September 3, 2013 | 40,00 EUR | answered by StB Patrick Färber
I live and work in France, and I receive my salary in France. I want to buy a protected monument house in Germany, and I know that tax benefits are possible if the house is renovated. Logically, one can only get tax benefits if they have a local income. My question is: do I have to (partially) rent out the house to receive the tax benefits, and if so, do the annual tax benefits accumulate if I cannot rent it out immediately because I am still renovating? How long do the benefits last?
Second question: are there other ways to receive financial benefits when renovating a protected monument house?
Dear inquirer,
I would like to answer your inquiry based on the information provided and within the scope of an initial consultation as follows:
- Tax benefits for construction measures (production costs) on listed buildings, which are necessary for the PRESERVATION of the building as a historical monument or for its meaningful use, are available in 2 forms:
- either as special expenses
- or as increased depreciation (§ 7i Income Tax Act)
I am not aware of any other tax benefits.
The first case - as you have recognized - is irrelevant if you do not have any income in Germany. It also only applies if you use the property yourself (without renting it out).
For the second case - as you have correctly identified - income from VuV must be present in Germany. Additionally, these would be taxed in Germany according to the German-French double taxation agreement (limited tax liability, meaning taxation without a basic tax-free allowance of approximately EUR 8,000, but from the first EUR of rental income), France exempts this income, possibly applying a so-called progression clause (to be clarified in France).
In Germany, you can already claim "anticipated" rental expenses if you purchase a house with the outward intention of using it to generate rental income. So if you renovate the house before renting it out, possibly with external financing, these expenses are already deductible as anticipated rental expenses. You submit a tax return in which negative rental income is determined and offset against rental income in subsequent years.
General costs for "renovation" and other costs related to later rental (excluding purchase price, real estate transfer tax, notary fees) are immediately deductible (anticipated) rental expenses.
However, these costs do not refer to the costs covered by the aforementioned tax benefit. These benefits only apply to certain, above-mentioned measures (preservation of the building, meaningful). For example, a complete new construction measure would not be eligible. It should be noted that these tax benefits can only be claimed as depreciations:
- 9% of the (monument-specific) production costs for 7 years, and
- 7% of the (monument-specific) production costs for another 4 years,
i.e. a total of 11 years. A rental activity must be present during this time. Production costs
However, for "depreciations" as rental expenses, it is generally applicable that they are only deductible when the rental property is "ready for occupancy" (but not necessarily rented). Therefore, you will usually be able to utilize this specific tax benefit only from the month/year in which the construction measure is completed.
Furthermore, it should be noted that only objects that have been certified as "historical monuments" by the monument authority are eligible for support.
Additionally, all construction measures must be coordinated with the monument authority! You cannot renovate "on your own." This often leads to significant construction delays in practice.
I hope this overview has been helpful to you!
Best regards,
Patrick Färber
Tax consultant
post@richtig-gegensteuern.de
