Tax tip: Faster depreciation of real estate

Anyone who rents out a property can claim the acquisition costs of the building as income-related expenses over the useful life in the form of depreciation. In the case of residential real estate, the useful life is regularly 50 years and a shorter period can be proven. The legislator wanted to abolish the approach of a shorter remaining useful life at the end of 2022, but was stopped at the last metres by the Bundesrat.

As a rule, the annual depreciation for a residential property is two percent of the building costs. The legislator thus assumes a useful life of 50 years. This also applies initially to a 90-year-old unrenovated property that is acquired in 2023, for example. Here, too, the law assumes a flat-rate remaining useful life of the building of 50 years, even if no maintenance or modernisation has been carried out on the building. However, since in some cases this does not correspond to reality, the Income Tax Act provides for an exception. If the actual useful life of a residential building is less than 50 years, this can be taken into account if appropriate proof is provided.

For example, if the acquisition costs of a 90-year-old building amount to 500,000 euros, the regular annual depreciation is two percent, i.e. 10,000 euros. At a tax rate of 40 per cent, for example, this means a tax reduction of 4,000 euros. However, if the actual useful life can be proven to be only 25 years, the annual depreciation doubles to four per cent and the tax reduction to 8,000 euros.

However, the legislator originally wanted to eliminate the proof of the shorter remaining useful life within the scope of the Annual Tax Act 2022, as the Federal Fiscal Court had ruled in its decision of 28 July 2021 (Ref.: IX R 25/19) that not only the building substance appraisal regularly required by the tax authorities serves as proof, but that the taxpayer can use any means of presentation suitable for providing the required proof. This should also apply in particular to the method of proof according to the Real Estate Appraisal Ordinance. This method is based on a typified total useful life from which the age of the building is deducted, taking into account modernisation measures.

Depreciation based on a shorter remaining useful life is still possible because the Federal Council did not agree to the deletion of the legal basis. Since the proof has been facilitated by case law, a favourable review from statutory depreciation to depreciation based on the remaining useful life is recommended in particular for landlords with older properties.