Tax Deduction: How Is It Possible?

Tax Deduction: How Is It Possible?

If the taxable person deducts the annual repair expenses as expenses for the ceased rental activity, it is not possible to obtain a household deduction on the basis of them. A taxpayer can receive a household deduction only on the basis of the cost of work done in the apartment he uses. The apartment has not been used by the taxpayer during the rental period, so an additional household deduction cannot be obtained on the basis of the annual repair costs allocated to it. The conditions for the household deduction are described in more detail in the Tax Administration’s guide Household deduction.

Impact of own use on reduction of repair costs

In the case law, part of the annual renovation costs has been considered deductible from the rental income when the apartment has been taken from the rental activity for own use.

When, in an apartment rented for a longer period of time in a controlled apartment, natural repairs were made after the end of the lease for the apartment’s own use, at least part of the repair costs were considered rental and deductible. Using the tax refund calculator is important here.

What Effects You Can Expect

The effect of the change in use on the reduction of repair costs must be assessed on a case-by-case basis. Annual repair costs are deductible from rental income to the extent that the repairs are due to the lease.

If the apartment or property is both partly for own use and partly rented at the same time, only the part of the annual renovation costs that is related to the rented part of the apartment or building is taken into account for the taxation of rental income. Annual repair costs for the part used for own use are non-deductible living expenses. However, they make it possible to obtain a household deduction if the conditions for the deduction are otherwise met.

The Renovation for You

Renovation costs can be deducted as depreciation when the dwelling is taken out of private use for rental purposes 10 years on a straight-line basis for the apartment and annual depreciation on the property as part of the depreciation of the building. The renovation costs are added in full to the acquisition cost of the dwelling if the dwelling is taken from the rental activity for own use.

Compensation

Pursuant to Chapter 3, Section 1 of the Housing Companies Act, a shareholder is obliged to pay company compensation in order to cover the company’s expenses in accordance with the criteria prescribed in the Articles of Association. The consideration is the share of the company’s expenses to be paid by the shareholder.

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