Apart from value appreciation, passive income and protection against inflation, owning your own real estate also offers tax advantages for owners. Investors in particular can deduct numerous expenses relating to their property when filing their tax return. Check out our article on the deductible costs in the blog.
Apartment owners who do not use their apartment themselves, but rent it out, benefit in particular through advantages on their income tax return. In addition to the purchase price, ancillary purchase costs, for example, can also be claimed against tax - in contrast to owner-occupiers. These include the land transfer tax as well as the expenses for the notary and the land register entry. Year after year, real estate owners can deduct these expenses over the expected period of use of the property. For buildings constructed after 1925, a period of 50 years is applied, for older buildings a period of 40 years. This means that for buildings constructed after 1925, two percent of the acquisition costs are deductible each year on the income tax return.
Numerous incidental expenses incurred in the maintenance, renovation or operation of real estate can be claimed for tax purposes. Consequently, the bottom line is that only the surplus remaining after the deduction of incidental expenses, which is generated annually with the rental income, is fully subject to income tax. In addition to costs for renovations and repairs, so-called advertising costs, such as costs for real estate agents and apartment advertisements incurred when a tenant changes, as well as costs for property management, are also deductible. Furthermore, operating costs such as garbage and sewage fees, property tax and house cleaning can also be claimed as tax deductions. However, if these are apportioned to the tenant, the costs must also be reported as income and therefore have no de facto effect on profits and the tax burden.
Refurbishment expenses that significantly improve the furnishings or equipment of a property are a special case. Unlike renovations, which serve to maintain and thus preserve the property, these expenses are referred to as production costs and, like acquisition costs, can only be depreciated over the intended period of use. Production costs include, for example, the installation of a new heating system.
Even if the apartment is temporarily vacant, the owner can deduct for tax purposes all costs incurred that he would otherwise pass on to the tenant. However, the owner must prove to the tax office that he or she is actively trying to find a new tenant.
Since loan interest is exclusively related to profit-oriented renting, it is fully tax deductible. While the options for owner-occupiers are limited, capital investors have numerous possibilities to secure tax advantages and deduct costs. However, since details of the legislation can change from time to time, it is advisable to consult a tax advisor.