Activity in an apartment - settlement problems and depreciation

It often happens that entrepreneurs, due to the costs or the size of the activity, or the specificity of the company, decide to run a business in the premises where they live. To this end, they allocate a part of the usable space of an apartment or house, e.g. one room for an office, and within this area they operate in an apartment.

Operating in an apartment - what can be counted as tax costs?

Pursuant to the law, an entrepreneur may include costs directly related to the conducted activity as well as indirect costs as tax deductible costs. Of course, in proportion to the space used. Moreover, in the register of fixed assets it is possible to include this part of the apartment in which the activity is conducted. In such a situation, part of the interest on the loan for the purchase of an apartment, as well as its depreciation, may be included in the tax deductible costs.

Depreciation of an apartment in tax deductible costs

First of all, in order to be able to depreciate a given premises and include the write-offs as operating costs, the taxpayer must be the owner of the flat. A flat that has only been rented or leased for housing and business purposes cannot be depreciated.

In order to include depreciation write-offs as tax costs, the premises in which the activity is conducted must be entered in the register of fixed assets. This register may include:

• premises owned or jointly owned by the entrepreneur,

• cooperative ownership right to a flat,

• a cooperative right to a business premises,

• right to a single-family house in a housing cooperative.

However, it should be remembered that the value of the premises is entered in the register of fixed assets, which corresponds to the part used in the conducted activity.

Example 1.

The value of the apartment is PLN 500,000, and 20% of its area is used for business purposes.

PLN 500,000 * 20% = PLN 100,000

As it results from the above entry, the value of PLN 100,000 can be included in the fixed assets register and from this amount one can make monthly depreciation write-offs according to the previously adopted depreciation rates.

Only linear depreciation for an apartment

In order for the taxpayer to be able to depreciate the apartment belonging to him, he must first of all determine the value of the property based on one of the selected methods specified in Art. 22 of the Personal Income Tax Act. In the case of buildings and residential premises, it is not possible to choose the depreciation method, because the only available form is the straight-line method.

For buildings and residential premises depreciated using the straight-line method, the depreciation rate is usually 1.5% per annum. The frequency of deduction of depreciation can be adapted to the form of tax settlement (monthly, quarterly or annually).

For example, if a given taxpayer pays tax quarterly, he may also make quarterly depreciation write-offs, but there are no obstacles to settle them monthly or annually.

Activities in the apartment - determining the initial value of the apartment

It should be remembered that the depreciation charges included in the costs, calculated on the basis of the initial value and the agreed rate, must be proportional to the size of the area intended for activity.

Usually, the initial value of the flat in which the activity is carried out is determined on the basis of the purchase price. In such a situation, the purchase price is increased by any additional costs related to the purchase, e.g. notary costs or the costs of finishing the premises.

However, if the real estate is built on its own, and not purchased as a ready-made fixed asset, its initial value is determined according to the manufacturing cost.

The value of an apartment can also be determined by a simplified method. The initial value is calculated by multiplying the initial value of the property by the area of ​​the premises and the amount of PLN 988. This amount results from the provisions of the Act. However, the simplified method is the least favorable among those mentioned.

Renting an apartment and depreciation

In the event that the taxpayer makes expenditure related to, for example, renovation of the flat he rents, then such investment is treated as a separate fixed asset. It is depreciated as an investment in a foreign fixed asset. In this case, the landlord is entitled to depreciation write-offs on the value of the expenditure.

Sale of a depreciated apartment and tax consequences

If an entrepreneur sells real estate that is partially used for business purposes, he does not suffer any adverse tax consequences. This is because the income on this account is not treated as income from business activity. It does not matter whether the property was entered into the company's fixed assets and depreciated or not.

The depreciation write-offs made by the entrepreneur do not result in additional tax burdens on account of the sale.

The sale of an apartment used in the business is accounted for as private sale. This means that if the sale is made 5 years after the acquisition of the property, then it is not subject to business tax.