Depreciation, or how to reduce the tax on renting out a flat

Renting out a flat is a good way of earning additional income. It should be remembered, however, that this involves having to declare the proceeds obtained in this way to the tax office. Fortunately, there is a way to reduce the tax on renting out a flat. Depreciation serves this purpose. What is it and who can use it? We explain the most important issues related to this subject.

• What is depreciation of a flat?
• Initial value
• Depreciation rates
• Calculations

What is depreciation of a flat?

When considering the tax issues related to renting out a flat, it is necessary to explain what its depreciation is. It is the degree of wear of the property and at the same time a way of reducing the tax on renting it out. According to the generally accepted definition, depreciation is the wear and tear of a fixed asset – in this case the property – expressed in monetary terms. Depreciation costs apply to flats, houses and commercial premises. Deducting them makes sense when you are taxed under the general rules or pay the flat tax (podatek liniowy). Under the lump-sum (ryczałt) regime, there is no tax benefit.

Initial value

To be able to deduct the depreciation costs of a flat, you need to know its initial value. This must be calculated depending on whether we acquired the property by purchase, gift or inheritance, or built it ourselves.

• if the property was bought, the initial value is the price we paid the seller together with all additional costs we incurred. This therefore includes the notarial fee, copies of the notarial deed (akt notarialny), costs related to the land and mortgage register (księga wieczysta), etc. The costs of finishing the interior can also be added to the initial value – if the flat was bought with a view to renting it out,
• in the case of inheritance or a gift, the initial value of the property equals the market value of a similar property in a similar location, etc. A property valuer, who will prepare the appropriate documentation, can be helpful here,
• in the case of a house we built ourselves – the initial value equals the production cost. This means we should know the costs incurred in buying materials and using external services,
• the simplified depreciation method, in turn, consists in determining the initial value on the basis of our own calculations. The floor area of the flat should then be multiplied by 988 PLN, but the value determined this way will be significantly lower than the market value.

Importantly, in the case of an improvement, that is when the purchased property required renovation or finishing, the costs incurred will increase the initial value of the property and will then also be depreciated.

RENTING A FLAT TO FOREIGNERS

Depreciation rates

We now know which properties can be depreciated and when. It is time to learn the three basic depreciation rates, which depend on the type of property:

• 1.5% is the basic rate, applied to residential buildings and premises.
• 2.5% is the rate applied to intangible and legal assets, which include the cooperative ownership right to a residential unit (spółdzielcze własnościowe prawo do lokalu), the cooperative right to commercial premises, the right to a single-family house in a housing cooperative, as well as to non-residential buildings and premises.
• 4.5% – the rate for rented underground garages.

Calculations

How should the depreciation of a flat be calculated? Below we present sample calculations for a flat worth 200 thousand PLN.

Purchase price of the flat: 200,000 PLN

Court and notarial fees: 11,000 PLN

Cost of materials necessary for the renovation: 25,000 PLN

Cost of paying the renovation crew: 15,000 PLN

The initial value of the flat for which the above costs were incurred ultimately comes to: 200,000+11,000+ 25,000+15,000 = 251,000 PLN. Assuming that the purchased property belongs to a housing cooperative, the appropriate depreciation rate of 2.5% should be applied, which means that the further calculations look as follows: 251,000 PLN x 2.5% = 6,275 PLN

The amount of 6,275 PLN is the value that can be booked as costs incurred when buying the flat, and it is by this amount that the tax base is reduced, so that less tax is paid.

Now that we know the amount we can deduct through depreciation, it only remains to note that the first depreciation write-off is made in the month after the month in which the flat was first rented out, so if you are renting out a flat, for example in Chorzów, from January, the first deduction can be made in February. With all these factors in mind, saving on a property becomes easier.

To dispel any doubts concerning a specific property, however, it is worth consulting the professionals at REMAX Gold, who will explain any problematic issues.