If you run a business in your home, the home loan installment may be classified as the cost of doing so – but not the whole. Interest is at stake in the amount corresponding to the share of “company” space in the total area of the property. To qualify the loan as costs, certain conditions must be met.
According to the Personal Income Tax Act, any expense incurred to achieve revenue or to maintain or secure a source of income may be deductible for tax purposes. It is important to show a cause and effect relationship between cost and income. If we run a business in our home and some rooms are “delegated” to such activity, then this cause and effect relationship obviously exists.
Hence, there is the possibility of entering into the costs of expenses related to the maintenance of the apartment – such as electricity, gas, administrative rent, but also furniture, repairs, etc. Can they be “thrown” into costs in full? Is the whole apartment used to generate revenue for the company? The answer will rather be: no. After all, we still sleep in the apartment, eat, etc. – we just live. So don’t be greedy at counting costs. According to the Remoney portal, we put housing expenses in costs in the amount corresponding to the share of the “company” area of the flat to the total area. So if – let’s assume 1/3 of the area is intended for company purposes, we can deduct one-third of costs with a clear conscience. The same applies e.g. to shopping expenses. If we furnish the living room in an apartment, the purchase of furniture will not be at the expense of the company. It is different if, for example, we buy a desk for our company office. And how is the housing loan?
Interest? But only paid off
If we took out a loan for an apartment as natural persons, in order to be able to deduct costs, we must “draw” the apartment to the company’s fixed assets register. In such a situation, all costs related to the maintenance of the property (but in the part corresponding to the company’s area) may be the cost of business – just like it is with a car entered into the company’s assets. Our cost may be e.g. inspections, insurance, fuel.
As experts of the Remoney portal explain, we also have the right to depreciation charges. Since the commissioning of real estate for use in business operations, we are entitled to write-offs from the initial value (for residential buildings usually 1.5%). If the apartment has been bought, its initial value will simply be the price plus additional purchase costs. However, it should be remembered that the initial value will be only the amount corresponding to the ratio of the area of business operations to the area of the apartment. So if we use 1/3 of the property per company, then only 1/3 of the purchase price will be our initial value.
The same applies, of course, to depreciation charges. Tax authorities accept depreciation of real estate, but only in part used by the company.
What about borrowing costs? Well, these will constitute the cost of our business, but it is only about interest costs, of course also in the part corresponding to the area of housing devoted to business activities. Another important caveat: interest will be charged as soon as the property is entered in the company’s fixed assets register. It must also be interest that we have repaid. When it comes to interest incurred before the apartment is taken into the company’s assets, the situation is different. Well, they will increase the value of the asset, and thus the amount of depreciation.
How much can we write off under depreciation? In the case of private housing, the amount of annual depreciation in the straight-line method is 1.5%. costs incurred in maintaining the part corresponding to the company’s business. If, however, there is a cooperative ownership right to the premises or the right to a home in a housing cooperative, then the depreciation rate is 2.5%.
According to the Remoney portal, it is also possible to set an individual depreciation rate for improved or used properties. The condition is that the apartment should be included in the fixed assets register for the first time. Secondly – if depreciation is to apply to a used apartment, the taxpayer must show that he has used it for a minimum of 60 months before entering the records. If it concerns improvements – it should be noted that before the property was drawn into the company’s assets, the expenses for its improvement accounted for at least 30 percent. initial value.
What about selling a “company” apartment?
Another matter, important from the entrepreneur’s point of view, is the possible sale of an apartment drawn into the company’s assets. What does this transaction look like from a tax point of view? The regulations apply to such a scenario. According to them, if the owner sells the property, which he entered into the company’s fixed assets and from which he made depreciation write-offs, then such a transaction does not result in revenue in the company, and therefore the need to pay tax. However, such a tax will be paid by a natural person.
What it comes from? Article 14 (4) 2 point 1 lit. and the act on personal income tax says what the law says that the income from business activity is, among others income from the sale of assets being fixed assets or intangible assets subject to inclusion in the register of fixed assets and intangible assets used for business purposes.
However, Article 14 (1) 2C of that law already says that income from economic activity does not include, inter alia, revenues from paid sale used for the purposes of business activities of a dwelling constituting a separate property, or a cooperative ownership right to a dwelling. So even if the property has been drawn into the company’s assets, sales revenue is generated on private land.