Tax benefits for the promotion of investments in new rented housing - Stopped
Already in the context of a conference of the ministries in charge of construction and housing that took place in Dresden in October 2015, the competent ministers both at national as well as at federal state level had demanded that changes be brought about to the general construction policy. This demand was made against the background of challenges concerning the availability of affordable rented housing, but also with respect to the need of providing housing to refugees.
Following a proposal made by the federal Minister of construction, Ms. Barbara Hendricks (a Social Democrat), on March 9, 2016, the federal government had then approved of the report on the coalition for affordable housing and construction and the building offensive. The program inter alia provided for making available of land building, tax benefits, a simplification of construction regulations as well as funding for subsidized housing.
However, although the primal drafts - especially with regard to the introduction of new specific depreciation possibilities for new rented housing to be contained in section 7 b of the German Income Tax Act – had been rather promising, at least the legislative process concerning the introduction of new tax benefits was brought to a stop recently.
Hitherto, pursuant to the current draft, the new regulation in particular covered the following issues
- In the year during which the acquisition or construction of the new housing takes place as well as in the following year, special depreciation at a rate of up to 10% had been planned to be allowable, in the third year, depreciation at a rate of up to 9% should have been possible. Pursuant to the federal government, this should have created the possibility to depreciate up to 35% of the building cost within the tax concession period.
- A special depreciation should have been possible where the building was already eligible for depreciations pursuant to section 7 para. 4 of the German Income Tax Act.
- The promotion of investments in new housing should have been limited to construction measures for which the building application or building notification is made in the years 2016 to 2018 and that making use of the special depreciation rules should have only been possible until and including 2022.
- In order to be able to make use of the special depreciation, the following prerequisites would have had to be fulfilled (1) the newly-constructed buildings may exclusively be used as residential real estate to be made available to third parties in the form of lease agreements, (2) the object must be let to third parties for residential purposes for a minimum period of ten years following the construction, and (3) the object must be located in a region with a tightened/overheated residential real estate market (Gebiet mit angespanntem Wohnungsmarkt).
In particular with respect to the fulfillment of the last prerequisite, the special depreciation rules would go hand-in-hand with the introduction of new rules related to caps on residential rent, the so-called “Mietpreisbremse” (cf. the article “Rent Cap 2.0?”). As part of the introduction of the new rent control rules, the governments of the federal states have been authorized to - by means of ordinance - specify those regions which are to be considered regions with a tightened/overheated residential real estate market (Gebiet mit angespanntem Wohnungsmarkt).
At present, the current legislative process is no longer pursued as CDU/CSU and SPD are not able to agree on the amount of the special depreciation base (ceiling amount). Until recently, a special depreciation base in the amount of EUR 2,800 until EUR 2,600 had been under discussion. However, it is questionable whether mutual consent will be achieved.
In order for such a bill to be enacted, an approval by the European commission would be required, too. Currently, it is also not entirely clear, yet, whether such approval would be granted.
To summarize, investors should not confide in the imminent introduction of a special depreciation for new build rented housing.