The acquisition and renovation of a listed property requires a large number of different special features. Some of these are of course aimed at preserving the architectural monument in its unmistakable construction. At the same time, however, it is usually also the goal of a renovation to prepare a property according to the currently generally applicable standards. This requires a constant exchange with the locally responsible monument authority. But this also means that the effort made for this is an additional financial challenge. Fortunately, this expense can be set either as special depreciation or as special expenses in the income tax return. In this way, the approach of remediation costs helps to reduce other taxable profits. And if this also leads to a loss carry forward, then the renovation costs of the listed property help to reduce future profits from other types of income. But also as a long-term investment, a listed property offers the prospect of a nice return.

Give away old construction properties and save 70% inheritance tax

1st Protected Property – Timeless, Extraordinary, Valuable

For someone who likes to see himself as an aesthete, but at least who also enjoys what he may feel beautiful in his eyes, it is a small pleasure to write this contribution. After all, this is a rare opportunity to weave the pleasant with the profane issue of taxation, which serves the relationship of authority between citizen and state. Thus, old listed houses with their architectural style remind us of times when there were still people who, on the one hand, were able to combine the aesthetically valuable with the everyday, namely the purpose of living.

2.1 Architecture as an expression of our corporate philosophy

Today no one would think of using such ornaments as an architectural expression of his self-image. Nevertheless, it also says something about us if we renovate such houses and preserve them for the future. It proves that we are aware of our history. We take responsibility for what is transferred to us. And we renew the areas that we understand are essential when it comes to perfection. That is why we see the architecture of the House of Eltzbacher as a symbol of our claim to our daily work.

Tax advantages for listed properties?

Acquisition of a listed property

3.1. When is a building a listed property?

First, we clarify what a listed property is. In principle, this is decided by the individual monument protection authorities on the basis of the monument protection laws applicable in the respective federal state. However, this can sometimes be very different from country to country. Therefore, a general explanation of this at this point is almost impossible. But this basically only plays a role if you want to apply for the protection of an object as a monument. Or if you want to prevent an existing monument from being deprived of protection. But if you purchase a listed property, you can consider the already granted status as a monument as a given. Then you only have to make sure that the renovation does not reduce the protection of the architectural monument.

3.2. Reasons to purchase a listed property

The purchase of a listed property can be made for various reasons. On the one hand, it can be seen as a pure capital investment, in which the return materializes only at the sale, if in the meantime the property experiences an increase in value. In this case, the purchaser can also use the object for his own purposes. In addition, under certain conditions, this can also be combined with a tax-free sale. Because if you own the property for at least ten years or lived there in the year of sale and in the two previous years, then this condition is fulfilled and the sale is therefore tax-free.

On the other hand, you can also purchase a listed property to rent it. In this case, one obtains income that is taxable as income from renting and leasing. Here, too, a blocking period of ten years applies to enable a tax-free sale of private.

Of course, a real estate company may also be interested in acquiring a listed property. But there are other circumstances to consider than when acquiring privately. Often, such an acquisition by a real estate company also offers the opportunity to participate your own children, but at least to transfer them to them later on particularly favorably.

Renovation of a listed property

The purchase of a listed property is often associated with an upcoming renovation. In such a case, one should of course also consider the costs of renovation during the purchase negotiations. Sometimes, however, this is only possible to a limited extent, because in addition to the actual costs, other factors must also be included in the decision to buy. Above all, the involvement of the respective competent monument protection authority in the renovation is necessary. All this can have consequences that may initially remain unrecognized. If construction measures are taken during the renovation, which lead to a significant change in the architectural monument, then the monument protection authority can withdraw the property's worthiness for protection. This in turn, as we want to show in a moment, can also cause serious tax disadvantages.

5. The 6 Tax Benefits of Renovating a Heritage Property

5.1. Advantageous tax renovation of protected properties: Requirements

Now we come to the tax interesting aspects of the acquisition and renovation of a listed property. In contrast to the purchase and refurbishment of another property, the refurbishment costs for a listed property can be deducted as special depreciations (§§ 7h, 7i EStG) or as special expenses (§§ 10f, 10g EStG). However, such renovation costs can only be set if the building is also considered a listed property in the sense of the Income Tax Act. However, instead of the tax law stipulating the criteria uniformly, what can be considered as listed property, it stipulates that this must be judged according to the regulations of the federal states. As we have already indicated, this can be subject to very different state laws.

On the other hand, this regulation also implies that only listed properties in Germany receive this funding.

5.2 Protected Property: Secure Special Depreciations and Increased Depreciation Rates

Be that as it may, in this way the legislature supports efforts to preserve architectural monuments worthy of protection. On the one hand, you can make a special depreciation on the renovation costs for rented or leased objects (§ 7i EStG). The special depreciation amounts to 9% of the costs in the year of rehabilitation and in the following seven years. Thereafter, a further 7% of special depreciation can be applied in the following four years. Thus, a full tax reimbursement of the renovation costs takes place over a period of only 12 years.

A slightly different special depreciation can be carried out if you renovate a property that is located in a designated renovation area or in an urban development area and meets some requirements that make it comparable to listed properties (§ 7h EStG). For example, refurbishment costs for buildings of historical, artistic or urban importance can also allow a special depreciation of 9 % during the year of refurbishment and the following seven years. Here, too, one can continue in the following four years with a special depreciation of 7%.

In addition, the regular depreciation on the building takes place. Because listed properties were usually built before 01.01.1925, the depreciation rate is 2.5% instead of the usual 2% for privately rented properties. However, if there is a rental for commercial purposes, you can also use the depreciation rate of 3 %.

5.3. Historically protected properties in private use: Renovation costs as special expenses

However, if you now purchase and renovate a listed property for private use for residential purposes instead of renting or leasing, you can deduct the renovation costs in the form of special expenses instead of the special depreciations. For this purpose, § 10f EStG provides that a listed property grants a deduction of 9 % of the costs as special expenses in the year of renovation and in the following nine years. However, this also requires that the property meets the criteria of §§ 7h and 7i EStG. However, one may then set none of these costs in the case of application for housing allowance or the tax advantage for own residential purposes in one’s own house according to § 10e EStG.

Thus, the legislator even makes it possible to promote the renovation of listed properties that serve their own residential purposes. Within a period of ten years, a refund of up to 90% of the restructuring costs can be obtained by tax.

5.4. Special expenditure deduction if there is no private use or income

The third way to take account of renovation costs is if a listed property is neither renovated with the aim of generating income nor with a use for residential purposes. In this case, in the year of completion of the rehabilitation and the following nine years, a deduction of 9% of the rehabilitation costs can also be made. However, this only applies if the own share of the rehabilitation costs exceeds those which may contribute to the rehabilitation through public or private donations.

By the way, this tax concession applies in general to cultural objects worthy of protection, including gardens or furniture, libraries and archives, as well as collections of works of art or of scientific value, provided that they have been in the possession of the taxpayer’s family for more than 20 years. The same applies if the status as a national cultural asset is recognised for this purpose.

5.5. Renovating protected properties: Using loss carry forwards

Thus, with the help of special depreciations or the deduction of special expenses, the tax burden on income tax can be reduced directly and very effectively.

If this still means that instead of a taxable profit, a carry-forward loss is incurred by the taxpayer, then the amount of income tax can also be positively influenced in the future.

But the use of a loss carry-forward is definitely a thing in which the optimum of tax advantages is only achieved if you have the tax expertise. In many cases, the targeted limited use of a loss carry-forward over several assessment periods can be tax-wiser than the immediate use of the entire amount. Therefore, we advise you to seek the advice of a tax consultant in such cases in order to benefit in the long term from the tax advantages in the renovation of listed properties. We are also happy to advise you on this.

5.6. Protected Property: Tax Advantage in Gift & Inheritance

However, a listed property can also have tax advantages for gifts or inheritance. Because here, too, it depends on the high age of a listed property. To be precise, this is about exceeding the useful life of a building at the time of its transfer by donation or inheritance. This is because the value of the property to be transferred is determined by its age. The younger the property, the higher the valuation. But even for real estate that is older than the statutory term of use of 70 years, there are own methods for valuation. Fortunately, these are tax-advantageous.

5.7 Protected Properties: Tax advantage in the case of reserved usufruct

Of course, these tax-favorable valuations can also be claimed when using the reserved usufruct. Because especially older listed properties allow for some tax advantage in the transfer.