A depreciation represents the depreciation of assets of the fixed and current assets of companies caused by consumption or wear and tear. In tax law, on the other hand, there is talk of deductions for wear and tear. In both cases, the depreciation period depends on how long the item can be used.
- Depreciation is used to record the scheduled and unscheduled depreciation of an asset.
- The depreciation period depends on the useful life of the asset.
- The depreciation tables provided by the Federal Ministry of Finance provide a good guide to the average useful life.
Use depreciation tables for orientation
Paragraph 7 of the Income Tax Act (EStG) requires that assets must be depreciated over their average useful life. In order to avoid constant conflicts between the tax office and the company, the Federal Ministry of Finance has created a depreciation table – also known as the depreciation table. This is used by companies as an aid in estimating the normal useful life of a good. There is both a general table and various industry-specific tables. The useful life stated there is based on empirical values. However, it is more a guide. Even if this is not legally binding, companies must credibly prove a shorter useful life.
Depreciation of buildings
Anyone who buys a property with the aim of making a profit by renting and / or leasing the property benefits from tax breaks in the form of depreciation. The acquisition and production costs can be deducted from tax over a period of many years. This includes various purchase costs – such as the real estate transfer tax or notary fees – and in the case of a new building the fees of architects. On the other hand, it is not possible to write off a property. After all, it does not have a limited useful life. In the case of owner-occupied living spaces, there is also no possibility of writing off the building.
In most cases, so-called straight-line depreciation is used, in which the amount to be deducted is the same every year. Depending on the initial situation, another method of depreciation can be chosen under certain circumstances. As far as the useful life is concerned, there are different regulations for different types of property. The following list illustrates this fact:
- New building: Anyone building a new building can deduct two percent of the production costs over a period of fifty years.
- Old building: When purchasing an old building built after 1925, it is also depreciated over a period of fifty years at 2 percent of the acquisition cost. If the building took place before 1925, the owners are allowed to deduct 2.5 percent from taxes for forty years.
- Rented apartment: Anyone who creates living space through a new building, an increase in the attic or a loft conversion can write off up to 5 percent of the acquisition and / or production costs over a period of four years.
- Listed buildings: Modernization costs can be deducted from 9 percent in the first eight years and 7 percent in the following four years. The same rules apply to the acquisition costs as to an old building. A special feature is that owner-occupiers are also allowed to make depreciation of 9 percent for ten years.
- Modernizations: The renovation of a property can be written off over a relatively short period of two to five years. As a result, the annual depreciation amount is between 20 and 50 percent. Small repairs can even be withdrawn from property owners after a year.
- Commercial buildings: In the case of commercial use of a property, the legislature expects it to wear out more quickly. Therefore, in this case, 3 percent may be applied for 33 years.
The depreciation of a car
The depreciation period for company cars has been six years since the beginning of 2001. In order to find out the correct annual amount for the depreciation, owners of a corresponding vehicle must first determine the complete acquisition costs. This also includes, for example, expenses for special equipment. Anyone who does not have the right to deduct input tax can logically also include sales tax in the acquisition costs. Then it is necessary to divide this sum over 6 years, whereby vehicle owners have to calculate the depreciation exactly to the month.
If at least 90 percent of the car is used for business purposes in the year of purchase and in the following year, a special depreciation of 20 percent is permitted under Section 7 of the Income Tax Act. However, this must be proven using the logbook. There are also other conditions. The business assets in the year of acquisition must not exceed EUR 235,000 and the profits of the previous year may not exceed EUR 100,000.
The depreciation of a kitchen
Anyone who equips a rented apartment with a fitted kitchen could for a long time immediately deduct the costs for the kitchen stove and sink as maintenance expenses. In a ruling from 2016, however, the Federal Fiscal Court decided to move away from its legal version. Since then, the judges have regarded a fitted kitchen as a uniform economic asset. As a result, real estate owners now have to write off the acquisition and production costs over a period of 10 years. This corresponds to 10 percent annually, which previously only applied to kitchen furniture.
The depreciation of a photovoltaic system
Since the value of a photovoltaic system decreases as a result of its operation, it is considered an independent movable asset under tax law. As a result, the cost of assembling the system can be written off. There are three forms of depreciation available for plants commissioned from 2011, which can be combined with one another:
- Straight-line depreciation: 5 percent of the investment amount for 20 years
- Investment deduction: 40 percent of the net price immediately
- Special depreciation: 20 percent of the net price within the first five years