Commencement of depreciation on an existing building with planned refurbishment and subsequent rental

Background to the dispute and the disputed legal issue

With the judgment of 2 March 2026 (GZ Ra 2024/15/0085), the VwGH clarifies its jurisprudence regarding the start of the depreciation of buildings in the area of income from rental and leasing. The taxpayer acquired a building in need of extensive renovation in 2016. Shortly after the purchase, extensive renovation and construction plans were developed. After several changes to the plans, construction work finally began in 2021. The original building was significantly expanded and upgraded, with the leased area significantly increased. Rental activities were not initiated until the end of 2021. The question arose as to whether the depreciation began with the acquisition of the existing building or only after completion of the extensive renovation and expansion measures.

The decisions of the courts

For the years 2016 to 2020, the taxpayer already applied for a tax credit on the purchase costs of the old building as part of anticipated advertising expenses. However, the tax office and the BFG refused this early depreciation. The administrative court upheld the BFG’s decision. Although the principle of the tax credit generally applies to a building acquired for rental purposes with the purchase date, this principle does not apply if construction work of significant scale is undertaken immediately after the purchase and the intention to rent the property is not directed at the acquired old building but at the building that will be constructed after completion of the construction work.

Legal reasoning of the VwGH

In the context of its decision-making, the VwGH also refers to previous case law, according to which extensive construction measures generally postpone the start of depreciation until completion. An exception exists only for spatially clearly delimited building components that are not affected by the construction measures. In the specific case, it was crucial that, through the general renovation, the entire building was comprehensively transformed in a way that the existing assets had disappeared and a new asset had emerged. The revenue-generating intent thus related to the building that was only created by the comprehensive renovation and expansion.

Practical implications and importance of documentation

The decision shows that in renovation and revitalization projects, the documentation of the rental intention is of considerable importance. If the acquired building is initially to be rented in its existing condition, the AfA can basically begin the purchase process from the outset. However, if it is established from the outset that the building is intended to serve for rental purposes only after a comprehensive renovation, the depreciation must be postponed until completion. However, the acquisition costs of the old building are not lost; they are instead incorporated – insofar as the old building structure remains intact – into the AfA calculation basis of the newly created building. The WGH’s ruling also underscores that in extensive renovation projects, not only the scope of the construction work is decisive. Equally crucial is the visible rental intention at the time of purchase. This should be carefully documented in the planning phase, as it can decide on the start of tax depreciation.

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