As a rule, the depreciation item will bring us the largest reduction of income taxes when renting real estate. Depreciation is, in other words, the wear and tear of real estate. Every year the property wears out and we can reduce taxes by the amount of wear and tear. E.g. with real estate for approximately 3 million CZK we can reduce taxes by approximately 450,000 CZK – and, therefore, I think it’s worth understanding the topic. We´ll now explain when we can depreciate and how to determine depreciation. Let’s go.
I’ll start with what properties can’t be depreciated.
We can therefore depreciate the following properties:
In order to know how much can be depreciated, we must establish the purchase price and then we´ll calculate the depreciation. First we must verify how much time has elapsed between the acquisition of the property and the beginning of rental. There are two possibilities:
We have two depreciation options
For the sake of simplicity, we´ll only deal with straight-line depreciation which is also the most commonly used. In total, 30 years are depreciated, in the first year 1.4 percent of the purchase price is depreciated and in the following years 3.4 percent.
Mr. Novák bought an apartment in Prague in 2019 for 4 million CZK and in the same year he started to rent it. In addition to the purchase price, he paid acquisition tax in the amount of 160,000 CZK and fees to his lawyer who arranged the transfer in the amount of 20,000 CZK.
Mr. Novák first had to determine the total purchase price. It is 4,000,000 CZK + 160,000 CZK + 20,000 CZK, that is a total of 4,180,000 CZK. However, this amount also includes the value of the share in the land under the apartment building. Using the price map of land in Prague, he found out that the price of the share in the land is 280,000 CZK. He can therefore depreciate 3,900,000 CZK.
The first year of the rental, depreciation is 1.4 percent, i.e. 54,600 CZK.
The second and subsequent years, depreciation is 3.4 percent, i.e. 132,600 CZK
In addition to depreciation, you can also use a number of other costs and you will find out how to tax income from real estate rental in this article.
In conclusion, I´d like to direct you to other materials that will help you with the rental of the property.