Unclear settlement of renovation expenses

Taxpayers have increasing doubts as to how to settle renovation expenses. Some amounts can be deducted straight ahead, while some other must increase their initial value and be depreciated. And all this is due to lack of a precise border between renovation and improvement. This leads to numerous disputes with the tax office. The latest interpretation does not explain everything either.

Mateusz Pietranek, a tax advisor, expert in the field of income taxes at GWW, comments for Prawo.pl the latest tax interpretation of the director of the National Tax Information No. 0114-KDIP3-2.4011.848.2020.2.MS,  which concerned the qualification and separation of respective expenses related to real estate as renovation or improvement within the meaning of tax regulations.

"The interpretation presents factors that may be taken into account by taxpayers when classifying incurred expenses as a renovation, with particular emphasis on the need to replace worn technical components, whose condition deteriorated as a result of day-to-day operation. It was also emphasized that renovation activities should be aimed at maintaining the existing substance of buildings. The tax authority stated that when performing them, materials complying with the current technological standards may be used. It is important, however, that the renovation should not result in an increase in the useful value, but only in restoration of a particular fixed asset to its original character. Contrary to the features described above, as a result of improvement, a fixed asset should be modernized or adapted to perform new functions.
– The interpretation may be an important determinant for taxpayers carrying out construction works with regard to the acquired real estate – emphasizes Mateusz Pietranek

The article is available at: https://www.prawo.pl/podatki/remont-i-ulepszenie-w-kosztach-uzyskania-przychodow,507146.html