When is depreciation of real estate possible and how does it work?
December 10, 2022 | 50,00 EUR | answered by Otto Dornbusch
Dear Sir or Madam,
my name is Otto Waldner and I am the owner of several properties. I am currently dealing with the topic of property taxation and wondering when depreciation of properties is possible and how it works.
For background information: Several years ago, I purchased a multi-family house and rent out the apartments to tenants. Now I have heard that I can depreciate the property for tax purposes to reduce my income tax. However, I am unsure of when and how exactly I can do this.
Currently, I regularly generate rental income from the property, but also have high expenses for maintenance and repairs. I would like to know if I can claim these expenses for tax purposes and how it will affect my tax burden.
My concerns are that I may be missing out on tax benefits through depreciation or making errors in the tax treatment of my properties. Therefore, it is very important for me to have clarity on when depreciation is possible and how to correctly carry it out.
My question is therefore: When is depreciation of properties possible and how does it work? What are the requirements that need to be met and how do I calculate the depreciation amount? Are there different types of depreciation and which should I use in my case?
Thank you in advance for your support and advice.
Best regards,
Otto Waldner
Dear Mr. Waldner,
Thank you for your inquiry regarding real estate taxation and specifically regarding the depreciation of properties. I understand that you are considering how to optimize your tax burden and what tax options are available to you when renting out your properties. I would like to explain to you in detail when depreciation of properties is possible and how it works.
Depreciation of properties is generally possible when it concerns rented or self-occupied buildings that are depreciable. This means that you can deduct the acquisition or production costs of the property as operating expenses for tax purposes over a certain period of time. This depreciation is also called "straight-line depreciation."
The prerequisite for depreciating properties is that the property is in the economic ownership of the taxpayer and has a useful life of more than one year. In addition, the acquisition or production costs of the property must be specifically determined and documented. You cannot deduct the costs of the property immediately in full, but must spread them out over the useful life.
The depreciation amount is usually calculated at a fixed percentage of the remaining value of the property. This percentage is determined by the useful life of the property and is usually prescribed by the tax office. For residential buildings, the straight-line depreciation period is usually 50 years, and for commercial properties, it is 33 years.
There is also the option to accelerate depreciation by taking advantage of special depreciation. These can be claimed in certain cases, for example, when renovating or modernizing old buildings. However, it is important to comply with the tax regulations and requirements precisely.
In your case as the landlord of a multi-family house, you can use the depreciation of the property to reduce your tax burden. You can depreciate the acquisition or production costs of the building over the useful life and also deduct the costs of maintenance and repairs for tax purposes. It is important to document all relevant costs and expenses and properly report them in your tax return.
I hope that I was able to help you with this information and provide you with a good overview of property depreciation. If you have any further questions or require individual advice, I am happy to assist.
Best regards,
Otto Dornbusch
