Can I deduct the costs for the renovation of my rental property from my taxes?
February 16, 2023 | 50,00 EUR | answered by Tina Ullmann
Dear tax advisor,
My name is Hans Beck and I own a rental property that I lease out. Over the past few years, I have carried out extensive renovation work on the property to improve the living quality for my tenants and increase the value of the property. The costs of these renovation works have amounted to a significant sum and I am now wondering if I can deduct these costs from my taxes.
I am currently concerned that the high renovation costs could affect my financial situation if I am unable to claim them as a tax deduction. As I do not have sufficient knowledge in the area of property taxation, I am reaching out to you to seek clarity on my tax options in relation to the renovation costs.
Could you please explain to me if and to what extent I can deduct the costs of renovating my rental property for tax purposes? Are there specific requirements or conditions that need to be met in order to claim the costs? If the costs are deductible, how exactly do I proceed with my tax return and what documents do I need to have ready?
Thank you in advance for your assistance and I look forward to your expert advice on this matter.
Sincerely,
Hans Beck
Dear Mr. Beck,
Thank you for your inquiry regarding the tax deductibility of renovation costs for your rental property. It is understandable that you are concerned about whether the high costs could impact your financial situation. I am happy to explain the tax options regarding renovation costs to you.
In general, renovation and modernization costs for rented properties can be claimed as tax-deductible expenses. There is a distinction between maintenance expenses and capital costs. Maintenance expenses are costs that are incurred to maintain or restore the original condition of a property. These can be fully deducted as advertising costs. Capital costs, on the other hand, are costs that lead to an increase in the value of the property, such as the expansion of a basement. These cannot be deducted directly in the year of creation, but must be depreciated over the useful life of the building.
To be able to deduct the renovation costs for tax purposes, you must be able to prove that they are indeed maintenance or capital costs. For this, you should collect and keep all relevant receipts and invoices. These include, for example, invoices from craftsmen, material costs, and receipts for construction services.
In the tax return, you enter the renovation costs in Appendix V (Income from renting and leasing). There you can specify the costs as advertising expenses and deduct them from the rental income. Please note that you cannot deduct the costs completely in one year, but they must be depreciated over the useful life of the building.
I hope this information helps you and answers your question. If you have any further questions or need assistance with your tax return, I am happy to help.
Best regards,
Tina Ullmann
Tax advisor
