Shorter actual useful life of a building and usufruct
Shorter actual useful life of a building and usufruct
A building can generally be depreciated over the typical useful life of 50, 40 or 33 1/3 years in accordance with Section 7 (4) sentence 1 EStG. If the useful life is actually shorter, the building depreciation can instead be recognized at a higher percentage rate in accordance with Section 7 (4) sentence 2 EStG. This requires an expert estimate of the useful life as part of an expert opinion, which in particular relates to the individual circumstances of the property. According to the German Federal Fiscal Court in its ruling of July 28, 2021 (case no. IX R 25/19), any expert method that appears suitable for this purpose can be used to prove an actual shorter useful life. However, the decision was sometimes misunderstood as a general facilitation of proof, which led to an increase in applications for consideration of a shorter useful life - solely with reference to the so-called ImmoWertV and without the involvement of a publicly appointed expert.
In its current ruling of January 23, 2024 (case no. IX R 14/23), the German Federal Fiscal Court dispels the misinterpretation that has arisen and clarifies that it only rejects a narrowing down to a specific appraisal method or a specific determination procedure in the expert opinion. In doing so, however, it contradicts the administrative point of view in the Federal Ministry of Finance's circular dated February 22, 2023, according to which the expert opinion must contain statements on all determinants relevant to the remaining useful life (the technical, economic and legal influencing factors). From the point of view of the tax authorities, a market value appraisal based on the so called ImmoWertV for building law purposes would therefore be unsuitable for providing evidence of the remaining useful life of a building for tax law purposes.
However, according to the Federal Fiscal Court’s ruling, an expert opinion based on the provisions of the ImmoWertV is also sufficient to provide information on the determinants relevant to the actual useful life. The ImmoWertV is not based on the technical wear and tear of a building; rather, the remaining useful life according to the ImmoWertV is determined based on economic criteria. However, a shorter economic or legal useful life is either only conditionally dependent on the technical condition of the building or, in most cases, not dependent at all. There is no requirement for expert findings on the technical wear and tear of the building if the shorter actual useful life is based on economic depreciation or legal circumstances.
Notice:
The German Federal Fiscal Court makes it easier to provide evidence of a shorter useful life of a building compared to the strict view of the tax authorities. Ultimately, however, the taxpayer must still submit an expert opinion from a publicly appointed expert in order to be able to claim a shorter useful life and therefore a higher depreciation rate. In view of the costs of the expert opinion, however, the proportionality of the expenses to the desired tax advantage must be examined on a case-by-case basis.
In addition, the consideration of the value of a usufructuary right in the assessment basis for building depreciation was disputed. The plaintiff had received a life-long usufructuary right to a rented property as a legacy; the heirs were her two sons. In return, she committed to taking over the liabilities on the property. Later, she acquired half of the co-ownership share from one of her sons. From the alleged elimination of half of the usufructuary right, she derived building acquisition costs in the amount of its capitalized value. This was rejected by the tax office as well as by the German Federal Fiscal Court.
This is because acquisition costs already presuppose expenses on the part of the taxpayer and require an economic burden. In the case in dispute, however, the beneficiary had not incurred any expenses in connection with the acquisition of ownership of the property with regard to the usufructuary right. She did not give up the usufructuary right in order to acquire the co-ownership share in the property. Rather, the plaintiff remained the owner of the usufructuary right in accordance with the applicable legal situation (Section 889 of the German Civil code) despite acquiring ownership. This continues to exist as a property right of the (new) owner. There was therefore no scope for acquisition costs in this respect.
On the other hand, the usufructuary had taken over the liabilities on the property in return for the usufruct. Even if a usufructuary is obliged to bear certain public and private-law burdens - in particular the interest from the liabilities on the property at the time the usufruct was granted - the usufructuary's consent to also relieve the owner of the loan repayment goes beyond this legal obligation. In this respect, acquisition costs therefore arise for the usufructuary right. The beneficiary can claim depreciation for the usufruct acquired in this way for the duration of the usufruct. As the tax court had not made any findings regarding the amount of the liabilities assumed yet, the German Federal Fiscal Court referred the case back.