Income taxation on rentals and leasing
One of the seven types of income is “rentals and leasing”.
What falls within the scope of the income type “rentals and leasing”?
- Income from rentals and leasing of immovable property. This applies primarily to the letting of buildings and parts of buildings that are not part of a business asset, such as house rentals, apartment rentals and subletting. This does not include the renting out of movable assets, e.g. of a motor vehicle or boat.
- Income from a business lease where the lessor has quit operations (not only temporarily) and leases the business out.
- Income from the licensing of rights for a definite or indefinite period of time or from the permission to exploit such rights, such as in particular rights from the granting of the use of works within the meaning of the Austrian Copyright Act and the licensing of industrial property rights, experience and authorisations. However, such income is to be reported in the context of rentals and leasing only if it does not arise in the context of a business.
- Income from the sale of rent and leasehold interest receivables if the receivable is not part of a business asset.
The income type of rentals and leasing as a rule also includes short-term letting to tourists, e.g. via an online platform (e.g. Airbnb).
Depreciation for wear in the case of rentals and leasing
In the case of income from rentals and leasing, the building is subject to depreciation. The expense incurred thereby is considered for tax purposes via depreciation for wear (Absetzung für Abnutzung, AfA) if and insofar as it is related to realisation of rental income: The taxpayer can deduct the acquisition or production costs of the building – distributed over the useful life – from tax.
As a rule, the acquisition and production costs are used as the basis for the depreciation for wear. The acquisition costs for the real estate are not considered, because real estate is not depreciable.
If an already let building was acquired gratuitously, the acquirer must continue his/her legal predecessor’s depreciation for wear.
Amount of the depreciation for wear
In the case of buildings, there is a legally fixed rate of depreciation for wear of 1.5 % in the context of income from rentals and leasing, which corresponds to a useful life of 66.6 years. A lower rate of depreciation for wear does not have to be applied. A higher rate of depreciation for wear may be recognised only if a shorter useful life is demonstrated by an expert opinion. In the case of rental houses built before 1915, a rate of depreciation for wear of no more than 2 % can be applied even without an expert opinion.
Accelerated depreciation for wear can be asserted for buildings acquired or manufactured on or after 1 July 2020. A maximum of thrice (4.5 %) the ordinary depreciation rate may be asserted in the year of initial consideration of the depreciation, and a maximum of twice (3 %) the ordinary depreciation rate in the following year.
Example accelerated depreciation for wear:
Acquisition of a building in 2022, acquisition costs: € 400,000, rate of depreciation for wear: 1.5 %
Accelerated depreciation for wear 2022: 400,000 × 4.5 % = 18,000
Accelerated depreciation for wear 2023: 400,000 × 3 % = 12,000
Depreciation for wear 2024: 400,000 × 1.5 % = 6,000
If the building is used for more than six months in the calendar year for realisation of income from rentals and leasing, the entire annual depreciation for wear (full-year depreciation) must be deducted, otherwise one-half of this amount (half-year depreciation). However, the rule regarding half-year depreciation for wear does not apply to accelerated depreciation.
Special circumstances in the case of rentals and leasing
Partial use for private or business purposes
The lessor may use part of the house privately, e.g. for his/her own residential purposes, or for business purposes, e.g. as business premises. In this case, the expenses attributable to the private part are not deductible; the expenses attributable to the part used for business purposes constitute operating expenses. They are generally apportioned according to the usable floor space.
Leases within the family
Leases between close relatives can be recognised for tax purposes only if they stand the test of a so-called arm’s length comparison, i.e. they would also have been concluded between strangers under the same conditions. Leases that are at a disproportionately low rent or to support money debt payers are not recognised for tax purposes.
Termination of the letting
If a building that was previously let is now used only privately, or if it is incorporated into business assets, the remaining one-fifteenth amounts for repair and maintenance expenses (but not those for production expenses) can be asserted in the following calendar years as subsequent income-related expenses in the income from rentals and leasing.