Acquisition-related manufacturing costs?
February 28, 2012 | 20,00 EUR | answered by Dipl.BW/SB Ulrich Stiller
Dear Sir or Madam,
I acquired a condominium in a 6-unit apartment building for rent on 01.02.2010. In my income tax return for 2010, all acquisition and production costs, including the comprehensive renovation, were summarized and a base of 46,314 euros for straight-line depreciation at 2% per annum was recognized by the tax office after deducting the land share.
The contributions to the special levy to the property manager amounting to 11,544 euros were not recognized.
The wording of the tax office:
"The contributions to the special levy paid to the property manager are only deductible as advertising costs when spent by the manager for maintenance measures. The base for depreciation is therefore 46,314 euros. The depreciation to be taken into account proportionately for 11 months is 894 euros."
I now have a confirmation from the property management about the expenditure. The apartment building was modernized in 2010 (windows, facade, outdoor facilities). How should I proceed with my income tax return for 2011? Can I deduct the contributions to the special levy as maintenance expenses in full or spread them over 2-5 years, or does the 15% rule for the first 3 years apply (which I would theoretically exceed), so that I have to declare subsequent production costs for depreciation?
Dear (s) inquirer,
Thank you for your inquiry, which I would like to answer based on the information you provided and in the context of your situation in a initial consultation as follows:
If, as you yourself write, you exceed the 15% threshold, the use of expenses from the special levy for acquisition-related expenses would also constitute expenditure that can only be depreciated at 2%.
However, in your case, the tax office explicitly informed you in the 2010 income tax assessment that the special levy paid out by the administrator for maintenance measures is deductible as advertising costs. If the 2010 income tax assessment is final, i.e. not subject to review, and not provisional regarding rental and leasing income, the tax office is bound by its statement that these expenses can be considered maintenance expenses, even if this statement is incorrect. The tax office would then be bound by the principle of good faith to its statement made in a tax assessment and effectively communicated to you.
Therefore, you should declare the costs as maintenance expenses without further comment in the 2011 tax return. If rejected by the tax office, the objection procedure must be followed as described by me.
I would be happy to clarify the matter in detail within the scope of a mandate, which is not possible through this forum. If interested, please feel free to contact me at my email address.
Best regards
Ulrich Stiller
Tax consultant/Diploma in Business Administration
