Cosmetic repairs – production costs – tax consultants – Hagen – Holzwickede – Kamen – Lünen

Expenses for repair and modernization measures (excluding VAT) incurred within three years of the acquisition of a property and exceeding 15% of the acquisition costs are not immediately deductible, but can only be taken into account via depreciation (production costs close to acquisition; Sec. 6 (1) No. 1aEStG).

The Federal Fiscal Court had ruled that purely cosmetic repairs also fall under this limit. As a matter of principle, the tax authorities apply the stricter case law in all open cases; up to now, only a close spatial, temporal and factual connection with a renovation led to its inclusion in the 15% limit.

Furthermore, the Federal Fiscal Court has clarified that, in the case of buildings consisting of several units used for different purposes, the 15% limit is not to be applied to the entire building, but to the respective independent part of the building. The tax authorities therefore no longer adhere to their previous legal opinion in this respect.

For cases in which the purchase agreement or equivalent legal act was concluded before January 1, 2017, it should be noted that the tax authorities will continue to apply the previous legal interpretation on cosmetic repairs and the building-related consideration upon request. In the example case, the more favorable old legal interpretation can be used here to obtain the immediate deduction of the costs.

(Further comments & information on this can be found in our information letter 03/2018 under the item 4.)