SECURE MAXIMUM BENEFITS FOR NEW-BUILD RENTAL PROPERTY NOW
DECLINING BALANCE DEPRECIATION OF FIVE PERCENT
The purchase of residential property as a capital investment is a sensible investment that can offer tax benefits. The tax authorities now allow buyers who rent out their home the option of declining balance depreciation.
A depreciation allowance of five percent can now be applied to the depreciable investment expenses incurred (or to the residual value in subsequent years).
Have a look at the sample calculation of how you can benefit from the declining balance depreciation:
Cumulative depreciation by comparison
(Example: € 500,000 total purchase price, € 400,000 thereof depreciable building
and ancillary acquisition costs, observation period: 10 years from acquisition)
With € 400,000 in depreciable investment costs, the investor can write off € 20,000 (five percent of € 400,000) for tax purposes in the first year, in the second year, € 19,000 is then depreciable (€ 400,000 minus the € 20,000 from the first year = € 380,000 residual value; 5% of this). Within five years of completion/acquisition of the property, the investor can thus claim around € 90,500 for tax purposes.
This results in various advantages for the buyer as a lessor:
- Faster refinancing of investment costs
- Reduction of the tax burden in the early years
- Improvement in liquidity
This noticeably increases the profitability of real estate investments.
As an investor, you remain as flexible as possible. You can switch to straight-line depreciation at any time if this is more favourable for you from a tax perspective. This allows you to optimally adjust your depreciation over the entire useful life of the property.
What conditions have to be met?
- The declining balance method of depreciation only applies to apartments.
- The purchase must be in the year of completion and the purchase agreement must be in the qualifying period (after 30 September 2023 and before 1 October 2029).
- The property must be rented out and may not be used by yourself.
Consult your tax advisor about what these new possibilities mean for you. We will be pleased to show you suitable properties.
DID YOU KNOW?
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- Comprehensive carefree package
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