Home ownership and taxes From 2020, save taxes thanks to new rules

From 1 January 2020, new legislation on real estate costs will offer property owners substantial tax-saving potential.

by Pension News 28 Oct 2019

Previously, expenditure to acquire residential property was counted as living expenses, regardless of whether a piece of land was purchased and built upon, whether a new, turn-key property was acquired or whether one in need of refurbishment was bought. In all cases, the purchase price had to be financed from taxed income and the costs were never tax deductible. This is where the new rules come into play as part of a new energy policy called Energy Strategy 2050.

Specifically, the new law will incentivize energy-efficient construction by providing appropriate allowances. Not only will energy-saving investments be tax deductible, so will costs that arise from razing an older building and replacing it with a new one. It will be possible to split expenditure between up to three consecutive tax periods, provided this spending was not already fully deducted for taxation purposes in the year in which it arose. Under the existing rules, only investments were eligible for tax relief (not the costs of razing) and only in one taxation period. Since such investments often exceed annual income, some of the theoretical tax savings were lost.

But under the new law, it is perfectly conceivable that no taxes need to be paid for three years because taxable income is equivalent to zero. In addition, the timing of the investment and construction work does not need to be so exact to obtain maximum tax relief.  

What is deductible and what is not?

The costs of dismantling installations, demolition, removal and disposal of the construction refuse are tax deductible. The costs of site remediation of the ground, terrain movements, clearances, leveling work and excavation work that goes beyond deconstruction with regard to the new, replacement building are not. The razing costs are only tax deductible if a new, replacement building is erected on the same site and within a suitable time frame, if the new building is put to the same use, and if the work is carried out by the same taxpayer who tore down the old building.

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