Amortization of the premises during a break in the lease - is it possible?

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Income from the rental of real estate owned by the company is one of the primary sources of profit. The rent obtained is reduced by the tax costs incurred by the taxpayer. One of the basic categories of costs are depreciation write-offs made from the initial value of the property. However, the question arises whether it is possible to depreciate the premises during a break in the lease? We will try to explain these doubts in this article.

Depreciation of the premises during a break in the lease as tax costs

At the outset, it should be noted that tax deductible costs may only be depreciation write-offs for the consumption of fixed assets and intangible assets made on the basis of the provisions of the Personal Income Tax Act (hereinafter the PIT Act). This is what Art. 22 sec. 8 of the PIT Act.

The issues of ceasing to make write-offs are regulated in Art. 22c point 5 of the PIT Act, which stipulates that assets that are not used as a result of suspension of economic activity under the provisions on the suspension of business activity or its discontinuation, in which these components were used, are not subject to depreciation; in this case, these components are not depreciated from the month following the month in which the activity was suspended or discontinued.

The presented provision, however, refers to the suspension of business activity in accordance with the relevant provisions, and not to a situation where the taxpayer conducts business activity, but due to other circumstances, e.g. when the premises is not used because there was a break in the lease. This leads to the conclusion that the temporary non-use of a fixed asset due to factors beyond the control of the taxpayer should not eliminate the right to make depreciation write-offs for the period when there are no tenants and thus the depreciation of the premises during a break in the lease could be possible. The taxpayer does not always have an impact on the continuity of the lease. It is not uncommon for the tenant to terminate the contract prematurely. Consequently, objective reasons should not affect the lack of the right to recognize depreciation write-offs on such fixed assets in tax costs.

Depreciation of premises in the event of a break in the lease - inconsistent position of the tax authorities

Due to the fact that the provisions do not give an unambiguous answer to the question raised, one should refer to the developed jurisprudence. Unfortunately, among the interpretations issued, completely different positions of the tax authorities can be found.

From some of the interpretation, it can be concluded that the premise that makes it impossible to make depreciation write-offs on fixed assets is a deliberate (permanent or temporary) resignation - in connection with which the use of these components is discontinued - i.e. a situation where the taxpayer (at that time) does not want to obtain rental income. On the other hand, a temporary interruption in the use of a dwelling caused by the termination of the lease agreement and the search for a tenant is not a premise justifying the cessation of depreciation write-offs.

As an example of such an approach to the subject, one can cite the individual interpretation of the Director of the Tax Chamber in Bydgoszcz of March 31, 2016, ITPB1 / 4511-103 / 16 / PES, in which we read the following:

In the light of Art. 22 sec. 1 of the Personal Income Tax Act, it should be emphasized that since all expenses incurred in order to maintain or secure the source of income so that it brings income in the future may be a tax deductible cost, then in the case of a temporary lack of tenants, if you prove that made efforts to attract a tenant, i.e. he did not give up the lease and the premises did not serve their own needs, depreciation charges in the period when the apartment will not be rented in connection with the maintenance of this premises may be considered tax deductible costs.

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A completely different position was presented by the Director of the Tax Chamber in Łódź in the individual ruling of August 8, 2013, No.IPTPB1 / 415-294 / 13-4 / AG:

Taking into account the facts presented in the application and the above-mentioned legal provisions, it should be considered that in a situation where the residential and commercial premises acquired for business purposes or introduced to the company, which are the property of the Applicant, have not been rented, there is no legal basis to start their depreciation. . It cannot then be assumed that they are used for business purposes. Only after meeting this condition, indicated in Art. 22a of the Personal Income Tax Act, it will be possible to depreciate these assets and include the accrued depreciation charges in tax deductible costs.

As you can see, the depreciation of the premises during a break in the lease so far evokes extreme opinions of the tax authorities. Probably until the general interpretation issued by the Minister of Finance is issued, the above issue will be considered in various ways and may still raise doubts as to the possibility of recognizing depreciation write-offs of premises in tax costs in the period when they are not rented.

Possibility of including other fees as tax deductible costs during the break in the lease

Finally, it is also worth pointing out that, as a rule, the tax authorities do not question the right to recognize in tax costs expenses for service charges incurred in the period when the property is not rented. The tax office points out that if the taxpayer actually makes efforts to find tenants, the costs may include expenses incurred to maintain (secure) residential and commercial premises during a temporary lack of tenants, the amount of which does not depend on the fact of renting them. It is possible in this case to assume that they were incurred in order to obtain revenues. Such expenses include the costs of rent, utilities (so-called fixed costs), water, heat and electricity, which do not depend on the amount of consumption, and real estate tax, i.e. service charges.