If a renovation is carried out in a condominium while the apartment is in its own use, the renovation costs are added to the acquisition cost (Section 47 of the TVL). Expenditure is therefore not deductible from any subsequent rental income.
Repair costs in connection with the purchase of an apartment or building
Often, a condominium or a building on a property is renovated after acquisition before the tenant moves into the apartment. The cost of a renovation made immediately after the acquisition and before the lease is added to the acquisition cost of the condominium or building, regardless of whether the renovation is an annual renovation or a major improvement. The matter has been raised in the Supreme Administrative Court’s yearbook decision KHO: 2000: 51. Make use of the taxfyle there.
What the Taxpayer Needs to Do
The taxpayer had received in a will the shares entitling to the condominium. The apartment, which had an area of 57 square meters, had not been rented in the condition it had been in the traces of the previous owner, so the taxpayer had commissioned the apartment to have the ceilings, kitchen walls and furniture painted, the living room and bedroom walls wallpapered and the floors covered. as well as a new ice freezer cabinet and a washing machine water tap. The repair costs had totaled FIM 12,550 and the rental income received for the 10 months after the repair in the tax year was FIM 24,370. As the costs had been incurred for repairs carried out after the change of ownership but before the apartment was rented out, they were considered to be costs assimilated to the acquisition cost, and may not be deducted in the tax year as annual expenses on rental income receivable.
- Based on the solution, the expenses are expenses related to the acquisition of the Condominium, which are taken into account when calculating the gain or loss on the sale of the Condominium. In this case, the renovation costs of the Condominium cannot be reduced even as a straight-line depreciation, because the costs are specifically included in the acquisition cost of the shares.
In a similar situation, the annual renovation and renovation costs of a building on a property are added to its acquisition cost. The difference with the costs associated with the acquisition of a condominium is that the acquisition cost of the building can be depreciated and thus the repair costs included in the acquisition cost can be deducted annually as part of the normal depreciation of the building.
There is no case law on how long an apartment must be occupied by the rental business before renovation in order for the renovation costs to be deducted as an annual expense. In the opinion of the tax administration, it is sufficient that the tenant has moved into an apartment or taken over a commercial apartment in the case of continuous rental use. Annual repair costs incurred after the change of tenant may be deducted as annual costs or straight-line depreciation in the case of renovation costs for a condominium.