How does the tax depreciation of real estate work?
May 30, 2023 | 50,00 EUR | answered by Tina Ullmann
Dear Sir or Madam,
My name is Helma Fritsche and I recently acquired a property that I would like to rent out. Now I am faced with the question of how depreciation of properties works for tax purposes. I am unsure of how to correctly report depreciation in my tax return and what tax implications this has for me.
Regarding the situation: I purchased the property for a price of 300,000 euros and plan to generate a monthly rent of 1,000 euros. The property is intended to be rented out long-term and serve as an additional source of income for me. I have already heard that I can claim depreciation of the property for tax purposes, but I am unsure of how exactly this works.
My concerns are that I do not want to make any errors in the tax depreciation and also want to ensure that I take full advantage of all tax opportunities to minimize my tax burden. Therefore, I would like to learn from you how I can correctly carry out the depreciation of properties for tax purposes, what requirements need to be met, and what tax benefits I can achieve.
Can you please explain to me exactly how depreciation of properties works and what steps I need to consider in my tax return? Are there any specific deadlines or limits that I need to adhere to for depreciation? What impact does depreciation have on my tax burden and how can I ensure that I report everything correctly?
Thank you in advance for your support and advice.
Sincerely,
Helma Fritsche
Dear Mrs. Fritsche,
Thank you for your inquiry regarding the depreciation of real estate in your tax return. I understand that you may feel uncertain and want to make sure that you are utilizing all tax opportunities correctly to minimize your tax burden. I will now explain in detail how real estate depreciation works and what steps you need to take in your tax return.
Real estate depreciation is referred to in tax jargon as "AfA" (depreciation for wear and tear). This depreciation allows you to claim the decrease in value of your property for tax purposes. For rented properties, you can include depreciation as operating expenses in your tax return to reduce your tax burden.
To be able to correctly carry out real estate depreciation, certain conditions must be met. Firstly, it must be a rented property that is not used for personal use. Additionally, the property must have a "depreciability," meaning it must be able to lose value over the years. In your case, since you intend to rent out the property, you already meet these requirements.
Depreciation is calculated over the useful life of the property, which is determined by the tax office. For residential buildings, the usual depreciation rate is 2% per year, spread over 50 years. This means that you can claim 2% of the property's acquisition value as depreciation in your tax return each year.
In your case, with a purchase price of 300,000 euros, you could claim 6,000 euros annually (2% of 300,000 euros) as depreciation. You can then include this amount as operating expenses in your tax return to reduce your tax burden.
It is important to adhere to certain deadlines when it comes to real estate depreciation. Depreciation begins in the year of acquisition or completion of the property and ends after the specified useful life. Therefore, you should report depreciation in your tax return each year to take advantage of the tax benefits.
In summary, real estate depreciation is an important way to reduce your tax burden. By including AfA as operating expenses in your tax return, you can utilize the tax benefits and minimize your tax burden.
I hope this information has been helpful to you. If you have any further questions or need assistance with your tax return, please feel free to contact me.
Best regards,
Tina Ullmann
