IVD provides information about the new degressive depreciation in housing construction With the Growth Opportunities Act, which came into force at Easter, comes the new degressive depreciation for investments in housing construction. “The IVD expects this to provide a noticeable impetus for the construction of urgently needed living space and has promoted this very much,” says Carolin Hegenbarth, Federal Managing Director of the German Real Estate Association. There are now many practical questions that arise for builders and investors, which the German Real Estate Association IVD addresses in more detail and provides information.

How high is the degressive depreciation? In the first year of application, five percent of the investment can be deducted as tax costs for the rest of the year on a pro rata basis from the time of completion or purchase. In each of the following years, five percent of the remaining book value. The assessment basis is therefore reduced every year by the depreciation used.

For which investments does the degressive depreciation apply? Depreciation only applies to newly built residential buildings and apartments or those purchased in the year of completion. A special energy efficiency standard does not need to be met. The general requirement applies that the building must meet the requirements of Efficiency House Standard 55, which has been mandatory for new buildings since January 1, 2023. There is no upper limit on construction costs.

Do the projects have to be built within a certain period of time? The decisive factor here is the notification of the start of construction. This date must be between October 1, 2023 and September 30, 2029. If state law does not require notification of the start of construction, the taxpayer must declare that he or she has voluntarily reported the start of construction to the responsible building authority.

What applies when buying real estate? The decisive factor for this is the purchase contract, which must be legally concluded between October 1, 2023 and September 30, 2029. The registration in the land register is not necessary and can be done later. Properties that were under construction or completed before this period are also eligible. However, the date of completion must not be before January 1, 2023. A building is considered completed when it is habitable. The building does not have to be approved yet, and there may still be remaining work to be done.

When building rental apartments, can the degressive depreciation be combined with the existing special depreciation in accordance with Section 7b of the Income Tax Act and to which cases does this apply exactly? Yes, both depreciation options can be used equally for new projects until the end of September 2029. Investments in newly built rental apartments with the energy building standard EH40/QNG are supported. Unlike the new degressive depreciation, there is an upper limit on construction costs for special depreciation. This has been increased from 4,800 euros to 5,200 euros per square meter. Purchase or production costs of 4,000 euros are now eligible instead of the previous 2,500 euros per square meter.

If you use the degressive depreciation, is it possible to switch to the linear depreciation later? Yes, a change to linear depreciation of three percent in accordance with Section 7 Paragraph 4 No. 2a of the Income Tax Act is possible at any time.

Source: IVD.net