The federal government increases depreciation for new residential buildings to three percent per year.
As of January 1, 2023, investing in a rented property has become even more attractive. The federal government has decided to increase the depreciation for rental properties from two to three percent. This regulation applies exclusively to new residential buildings. Accordingly, this includes many new DFK properties that will be completed after January 1, 2023. Although a one percent increase doesn't sound like much at first, an example calculation shows that this one percent certainly has potential:
For an apartment with a purchase price of 300,000 euros (only buildings without land), the depreciation per year is currently 6,000 euros. With a tax rate of 42 percent, this provides a tax advantage of around 2,520 euros. After the increase to three percent, the depreciation amounts to 9,000 euros per year. Multiplied by the tax rate in the example, this results in a tax advantage of around 3,780 euros. Accordingly, in the example, around 1,260 euros more per year remain in your wallet.
For the maximum period over which a rented property can be depreciated, the new regulation means: instead of the previous 50 years, the property will be fully depreciated after 33 years after the change. However, only those landlords whose properties will be completed from January 1, 2023 will benefit from the new regulation. For buildings completed before that, the depreciation remains at two percent, or 2.5 percent for buildings completed before 1924.
At the same time as the increase in linear depreciation, the special depreciation in accordance with Section 7b of the Income Tax Act was also extended and adjusted. The special depreciation applies from January 1, 2023 until the end of 2026. Within the regulation, five percent of the production costs can be depreciated in addition to the linear depreciation for new rental apartments in the first four years. However, this is subject to strict conditions. The newly built residential building must meet the standard of a KfW Efficiency House 40. In addition, the production costs must not exceed 4,800 euros per square meter. Experts criticize the two points because the construction costs for an efficiency house 40 will usually exceed 4,800 euros, so the regulation can only be applied in a few cases.
The new regulation should also eliminate the possibility of individually proving a shorter useful life for an object. The associated Section 7 Paragraph 4 Sentence 2 of the Income Tax Act should be deleted. However, this did not prevail in the legislative process. Accordingly, a higher depreciation rate remains possible in individual cases.
