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Acquisition-related production costs – restoration to a contemporary condition

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Costs for maintenance and renovation,

incurred within three years of acquisition and (excluding sales tax) exceed 15% of the acquisition cost of the building are generally not immediately deductible and only have an effect on rental income in the context of depreciation (so-called “depreciation”). Production costs close to acquisition; Sec. 6 (1) No.1a EStG). After many years of renting, renovation costs to restore the apartment to a contemporary condition often cannot be avoided, otherwise it is almost impossible to re-let the apartment. Until now, it was unclear whether these renovation costs could be deducted immediately as income-related expenses if they were incurred within three years of acquisition.

However, in a recent ruling, the Federal Fiscal Court decided that no immediate deduction is possible for corresponding costs – since they are hidden defects that were already present at the time the building was acquired.

 

Example:

In 2015, V acquired a rented condominium for €70,000; the building accounted for €50,000 pro rata. In January 2017, the long-time tenant suddenly passed away. Since the equipment was no longer up to date, V was forced to carry out renovations (bathroom, windows and electrical installations). In 2017, it incurred costs totaling €12,000 net.

The costs exceed the 15% limit of (15% of €50,000 =) €7,500. It is not possible to immediately deduct renovation costs as income-related expenses; they only have an effect via depreciation.

 

Something else would only apply if the defects in the apartment had only arisen after acquisition due to the culpable actions of the tenant.

 

(Further comments & information on this can be found in our information letter 10/2018 under item 3.)

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