If you have a rented apartment renovated before the end of the year, you may be able to save taxes. Because the expenses can be claimed for 2016 as advertising costs. This is pointed out by the Federation of Taxpayers. If a landlord still has the leisure shortly before the end of the year and work is pending anyway, then a spontaneous renovation can be worthwhile. But if you have recently purchased the apartment, you should remember: If the expenses for modernization and maintenance exceed 15 percent of the acquisition costs within the first three years after purchase, then the expenses can only be depreciated over the useful life. The tax authorities also distinguish between maintenance costs and production costs. HAUSGOLD presents important deadlines and distinguishing criteria for the tax return. For this we use a vivid example from the Lohnsteuerhilfeverein Vereinigte Lohnsteuerhilfe e. V. (VLH). Deduct the cost of renovations in full
Whether a façade insulation, a more modern bathroom or a new heating system: Landlords can fully deduct the costs of renovations or modernizations of their properties from the tax. Tenants or owners, on the other hand, can only deduct part of the renovation costs.
Basically, the tax office makes no difference whether it is minor repairs (for example, a clogged drain pipe) or more complex renovations (such as a new roof). It is crucial that the costs are valued as so-called maintenance expenses. Only then can they be fully deducted from tax as income-related expenses in the year of payment. If, on the other hand, the costs do not count as maintenance expenses, but are classified by the tax office as so-called production expenses, they can only be deducted from tax over several years. This is called depreciation. What is maintenance effort?
According to the Federal Ministry of Finance, “expenses for the renewal of existing parts, equipment or plants” are considered maintenance expenses. In this context, it is important that the new or modernised parts of the building replace the function of the old parts in a comparable way. The possibility of use or use shall be preserved or restored.
Renovate rented Bathroom Renovations apartment: example of tax return:
A few years ago, Mr. Mustermann put his savings into a terraced house in order to secure a financially carefree future through the rental income. Mr. Mustermann regularly carries out renovations or modernizations every few years. This makes sense because the house is already 40 years old. This year, he renewed all the existing windows of the house and replaced a skylight with a dormer window.
The new windows are clearly maintenance. The old windows were replaced by new, more modern windows. The original function is retained. In the case of the dormer window, on the other hand, the tax authorities control more precisely: If Mustermann’s dormer window were to increase the usable living space in the attic, he would expand the existing living space. In the sense of tax law, there would then be a production expense. Mr Doe could only write off the costs over several years. But this does not apply here: Mustermann’s dormer window does not increase the usable living space. Therefore, the cost of the dormer window is also maintenance. This is relevant when landlords renovate a rented apartment. To deduct maintenance expenses
Mr. Mustermann paid around 10,000 euros for the new windows and the dormer window. As explained above, he can claim all costs (both the costs of the new material and the working time of the craftsmen) as maintenance expenses. John Doe must enter the sum of all his repair costs over the period of one year in the “Rental and Leasing” annex on page two of his tax return. Before that, however, he should choose between the following two options:Either he indicates the full cost in the year in which he paid for the repair.
OrIt distributes the costs evenly over two to a maximum of five years.When is it worth specifying the full cost in the same year?
Assuming that Mustermanns has had a very successful professional year. He was promoted and has a high annual income. Through the rental of his terraced house, he has additional income of 15,000 euros a year. He had to invest 10,000 euros for the window installation on his rented terraced house. He can declare these costs in the same year to 100 percent, because this reduces his income from renting and leasing to a total of 5,000 euros. Mustermann can thus significantly reduce his tax burden. When is it worthwhile to spread the costs over several years?
If, on the other hand, Mustermann’s career went less well – he lost his job and only a low income – he is better advised to spread the costs of the renovation in the amount of 10,000 euros over several years. If he spreads the costs over five years, that’s 2,000 euros per year. Under certain circumstances, Lohnsteuerhilfeverein Vereinigte Lohnsteuerhilfe e. V., his taxable annual income could fall under the basic tax-free allowance of 17,304 euros (for singles it is 8,652 euros) – and he would no longer have to pay any taxes at all. Even if Mustermann wants to sell the rented house before the end of the five years, he can continue to deduct the costs of the renovation of 2,000 euros annually as advertising costs from the tax. If, for example, he sells the house after three years, he can deduct the remaining advertising costs, i.e. 4,000 euros for two years, immediately in the sales year.
Repair tip if you are renovating a rented apartment: