Does the ban on apartment depreciation completely deprive the possibility of deducting costs?

Amortization, in simple terms, refers to the gradual depreciation of fixed assets expressed in monetary terms. In the context of a rented apartment, it signifies the natural loss of its value over time, i.e., a decrease in its initial value. According to the previous regulations, the depreciation of an apartment provided the opportunity to reduce the amount of tax, and in the case of individual rates, even to zero it out.

With the implementation of the “Polish Deal” provisions, Article 22c point 2 of the Personal Income Tax Act received a new wording, as a result of which, from January 2022, depreciation no longer applies to:

1. Residential buildings along with elevators located therein;
2. Residential premises constituting a separate real estate;
3. Cooperative ownership right to residential premises; and
4. The right to a single-family home in a housing cooperative
   • used for conducting business activity or leased or rented based on an agreement. This means that property owners no longer have the possibility to reduce their obligations to the tax office, resulting in higher taxes and lower net profits. These provisions apply regardless of whether it is the depreciation of a new apartment or a property from the secondary market. According to the transitional provision, PIT and CIT taxpayers can include depreciation allowances for the aforementioned residential buildings and premises being fixed assets and intangible assets, acquired or produced before January 1, 2022, but no later than December 31, 2022. From January 1, 2023, no taxpayer will be able to benefit from depreciation allowances for residential buildings and premises.

In an individual interpretation issued by the Director of the National Revenue Administration on October 17, 2022 (0111-KDIB1-1.4010.495.2022.1.SH) regarding a company subject to CIT, it was indicated that after the end of the transitional period, the unamortized initial value can only constitute the cost of selling buildings to a third party. This means that entrepreneurs losing acquisition costs of apartments and houses will be able to recover them upon the sale of the property. Tax is then paid on income, i.e., revenue reduced by costs, including expenses for the acquisition of the property in the unamortized part.

The situation is slightly different when settling PIT, as if the sale of the property occurs after 5 years from the end of the calendar year in which it was acquired, then no tax needs to be paid at all. However, if the income from the sale is used for own housing purposes within 3 years from the end of the tax year in which the sale took place, then it is possible to benefit from an exemption.

The introduced ban on the depreciation of apartments deprives entrepreneurs who do not plan to sell the acquired properties of the possibility to reduce their obligations to the tax office, while entrepreneurs intending to make such a transaction must satisfy themselves with the postponed possibility of deducting increased costs.