Property Depreciation Rate - How Much is it?

Service-Tax

Expenses incurred on certain assets cannot be directly classified as tax deductible costs - they will constitute a tax cost through depreciation write-offs. This applies to assets defined as fixed assets. The company's fixed assets also include real estate. However, do you know what the depreciation rate for the property should be applied? We answer below.

Fixed assets and individual depreciation rate for real estate

The company's fixed assets include items that:

  • they are owned or jointly owned by the taxpayer,

  • were purchased or manufactured on their own,

  • are complete and fit for use on the day they are accepted for use,

  • the expected period of use in the company is longer than one year,

  • they are used by the taxpayer for the purposes related to his business activity or put into use on the basis of a rental, lease or leasing agreement,

however, in the case of VAT payers, the limit value is PLN 3,500 net.

 

According to Art. 22j. point 1 of the Personal Income Tax Act, the individual depreciation rate may be used for:

1) fixed assets from groups 3-6 and 8 classifications of fixed assets, that is:

  • group 3 - boilers and power machines

  • group 4 - machines, devices and apparatus for general use,

  • group 5 - specialized machines, devices and apparatuses,

  • group 6 - technical device,

  • group 8 - tools, instruments, movables and equipment, not elsewhere classified

a) 24 months - when their initial value does not exceed PLN 25,000,

b) 36 months - when their initial value is higher than PLN 25,000 and does not exceed PLN 50,000,

c) 60 months - in other cases;

2) means of transport, including passenger cars - 30 months;

3) buildings (premises) and structures, other than those mentioned in paragraph 4 - 10 years, with the exception of:

a) permanently attached to the land commercial and service buildings listed in type 103 of the Classification and other non-residential buildings listed in type 109 of the Classification, permanently attached to the land,

b) kiosks with a cubature of less than 500 m3, camping houses and substitute buildings - for which the depreciation period - cannot be shorter than 3 years;

4) non-residential buildings (premises) for which the depreciation rate for real estate is taken from the List of depreciation rates and amounts to 2.5% - 40 years minus the full number of years that have elapsed from the date of their first use to the date of introduction to records of fixed assets and intangible assets kept by the taxpayer, except that the depreciation period may not be less than 10 years.

An entrepreneur who intends to buy a property should think about buying a used property before making a transaction - thanks to accelerated depreciation, this can be much more advantageous than buying a new property.

Depreciation rate for real estate 2.5%

In the case of properties listed in group 1, subgroups 101 to 109 of the classification of fixed assets, it is possible to apply an individual depreciation rate for the property. However, for this purpose, the following conditions must be met:

  • the building must be used for more than a year before it is entered in the company's fixed assets register,

  • the building was previously used for business purposes,

  • the building is non-residential,

  • the depreciation period of the building is not less than 10 years.

How to prove that the building was previously used?

An entrepreneur who has purchased a second-hand property should take into account whether, in the event of an inspection, he will have to prove that the building was previously used by the previous owner.

Important!

Tax regulations do not specify exactly with what documents the taxpayer should prove the previous use of the building by the previous owner.

In a situation where an entrepreneur buys a building that has been used previously for 30 years, he has the right to reduce the number of 40 years specified in the Act by this period. As a result, the entrepreneur will apply the 10% depreciation rate for the real estate, and therefore will be able to include 1/10 of the real estate value in tax costs.

However, it should be remembered that if the difference between the number of years according to the law (40 years) and the documented number of years of use by the previous owner is less than 10 years, the entrepreneur may not apply a lower depreciation rate for the property than 10% per annum.

Property depreciation for a minimum of 3 years

In addition to the above methods of accelerating the depreciation of real estate, the entrepreneur may use a depreciation period of not less than 3 years. It is possible in the case of purchasing real estate included in group 1, subgroup 103 KŚT, that is:

  • shopping centers,

  • department stores,

  • independent shops and boutiques,

  • permanent commodity kiosks connected to the ground,

  • halls intended for fairs, auctions, exhibitions,

  • indoor markets,

  • petrol stations, service stations,

  • pharmacies,

  • other commercial and service properties.

In the event that the depreciation period would exceed 3 years, the depreciation rate for the real estate could not be lower than 33%. However, the application of this rate is possible provided that:

  • the building is permanently attached to the ground,

  • the entrepreneur proves that the property was used by the previous owner for the purposes of conducting business for at least 60 months,

  • the building acts as a non-residential real estate,

  • the depreciation period for a given building is not shorter than 3 years.