The building depreciation reflects the economic wear and tear (depreciation). Machines and systems in a company wear out over time. To take this fact into account, depreciation is made and recorded in the bookkeeping. Buildings also wear out over time, in a company buildings are considered assets for which depreciation on buildings is permitted. A distinction is made between self-used and rented buildings, so distinctions must be made in the case of building depreciation.
Definition: What is building depreciation?
According to Topbbacolleges, depreciation on buildings (depreciation) represents a distribution of the expenditure and depreciation of an asset over the years of use of a building. They are therefore used to determine the period result. Even when the value of buildings increases, for example due to rising building prices, building depreciation is made. In addition to the deductions for depreciation, a reduction to a lower partial value is possible in the tax balance sheet. In cost accounting, the depreciation represents on buildings represents part of the building costs. It is determined independently of the balance sheet depreciation according to imputed criteria and is only carried out for buildings and parts of buildings that are used for business purposes. Building depreciation can be recorded in the auxiliary cost center building in addition to other building costs. The total cost of the auxiliary cost center building can be distributed to the utilizing cost centers in the internal cost allocation depending on the space used. When measuring the building depreciation (AfA), the construction method and the type of use of the building must be taken into account.
Building depreciation and tax law
In the case of rented properties, acquisition and production costs can be taken into account and subsidized for tax purposes through building depreciation. Acquisition and production costs of buildings can be deducted from tax over several years. The building depreciation (AFA) is the deductible part of the acquisition and production costs. Expenses relating to the land are excluded from depreciation. Because the property on which a commercially used building stands cannot be depreciated. For the purpose of depreciation must be the acquisition cost be divided between buildings and land. Individuals who rent or lease buildings can claim the depreciation on buildings along with interest, renovation costs and ancillary costs as business expenses. Building depreciation can only be claimed for rented and operationally used houses and apartments. If part of a property is used for one’s own residential purposes, the acquisition and production costs must be divided between the various areas used.
The legal regulations for depreciation on buildings can be found in the Income Tax Act (EStG) and in the Commercial Code (HGB).
How do you calculate the building depreciation?
With the building depreciation (AfA) the linear (according to § 7, Abs. 4 EStG) and the degressive depreciation are used on buildings (according to Section 7, Paragraph 5 EStG). In the case of buildings that consist of several independent building parts, each part of the building must be depreciated individually; different depreciation rates can be used for this. If a building is used differently, there are several independent parts of the building, for example if a building is used by the company itself and in part by an external company or if a building is used partly for one’s own and partly for third-party residential purposes. With straight-line and declining balance depreciation, a distinction is made between farm buildings and other buildings. Other buildings do not meet the requirements of farm buildings. The farm buildings include
- Buildings belonging to business assets
- Buildings that are not used for residential purposes
- Buildings for which a building application was submitted after March 1985.
With straight-line depreciation (according to Section 7, Paragraph 4 of the Income Tax Act), acquisition or production costs are distributed evenly over the legally stipulated useful life of a building. The linear building depreciation (according to Section 7, Paragraph 4 EStG) can be used for all types of buildings in Germany and abroad. The declining balance depreciation (according to Section 7, Paragraph 5 EStG) can no longer be used for buildings that were built or purchased after 2006. For buildings from earlier years, however, declining balance depreciation can still be applied. The depreciation rate is reduced after a certain number of years. A change between straight-line and declining balance depreciation or vice versa is only possible if
Buildings depreciation formulas
The rules for building depreciation are no different from the normal rules for depreciation. The depreciation for wear and tear (Depreciation) applies equally. The depreciation tables contain the normal useful life of fixed assets.
Examples of building depreciation
Using an example, the linear building depreciation (according to Section 7, Paragraph 4 of the Income Tax Act) is to be shown. If a private person has acquired a building that was built after December 31, 1924, he or she can deduct two percent of the acquisition costs annually for 50 years without real estate. If the purchase price without land is 200,000 euros and the personal tax rate is 35 percent, the private individual can save taxes of 1,400 euros per year, and the taxable income is reduced by 4,000 euros per year.
An example for several parts of a building is intended to illustrate the depreciation of commercial buildings. A three-storey building, which was built after 2013, is used as a law office, for third-party residential purposes, for own residential purposes, for third-party business purposes and as a shop. In this case, the building consists of four separate building parts. The building depreciation (depreciation) of the different parts of the building is correspondingly different.
The starting point for calculating the building depreciation can be the acquisition or production costs for the building. It is important to note, however, that proportionate property costs are not part of the assessment basis. However, if costs fall on the unit of land and building, the costs must be shared. By using different buildings, there are independent parts of the building that can be depreciated independently. Different depreciation methods can be used here. In general, all buildings can be depreciated using the straight-line method, as declining balance depreciation is only used for self-constructed buildings or for buildings that are acquired in the year of completion. The building application is a prerequisite for this. In addition, the declining balance depreciation can also be applied to real estate that is located in the EU and EEA. For this purpose, the depreciation must be carried out as soon as the building is acquired or completed.