Do you know what could you amortize for a property?
To amortize for a property means, in accountability, the depreciation suffered by the assets of a company, either by use or by the simple passage of time. In this way, we can find that the value of the property consists of two elements:
- The built on the ground
The value of construction is the only amortizable because the ground is something that as a rule does not depreciate, but also increases its value. Therefore, first, we have to differentiate the value of land and construction.
- 1. How is the value of building calculated?
- 2. Amortizable value
- 3. Straight-line depreciation
- 4. What are the amortization tables?
- 5. Redemption of used goods
- 6. Amortization of leased properties
- 7. Tax incentives for small companies:
- 8. Methods of direct or objective estimation:
1. How is the value of building calculated?
The construction value is calculated by applying, to the acquisition value, the percentage resulting from the rateable value. We can make an idea of this percentage of the total value for each part by using the values shown on the receipt of IBI; and then we can apply that percentage to the purchase price.
We bought a property for an amount of € 600,000, including expenses.
According to the last IBI receipt of the rateable value it is as follows:
- Land value: 100,000
- Construction Value: 200,000
Therefore the ratio is 66.66%
This means that when we amortize:
- Value of the land: 600,000 * 33.33% = not amortizable
- Construction value: 600,000 * 66.66% = 399,960 € depreciable at a rate of 2 to 3% annually
2. Amortizable value
In order to demonstrate the depreciation of an asset the amelioration of the value of the property should be reflected in the company accounts, so several factors must be taken into account:
- Its purchase price, which includes the price for which they sold that property plus costs such as insurance, customs, notary, registration, taxes, etc. that could be applied. These expenses are considered higher-value acquisition and therefore they are amortizable at the same rate.
- The value is expected to have when finished its operation by the company, called residual value
- The depreciable value, ie the value which is amortized
- And the book value, the value reflected in accounting
3. Straight-line depreciation
There are different methods of depreciation of property, but the most common is the linear method, which consists on calculating the depreciation of assets acquired by the company in fixed and constant quotes. Therefore all accounting years would have a fixed repayment fee. We can find the coefficients of linear depreciation amortization tables.
4. What are the amortization tables?
The most common method to amortize a building is using the amortization tables, which establish for each asset a maximum coefficient of linear amortization and a maximum repayment period, the estimated number of years.
A newly acquired computer can amortize for a minimum of 4 years and a maximum of 10, with a maximum ratio of 25%.
Generally the two types of buildings that differ in amortization tables are:
- Industrial buildings and warehouses, with a maximum depreciation rate of 3% annually and a maximum period of 68 years.
- Residential and commercial buildings or offices with a percentage of 2% and a maximum period 100 years.
|Land dedicated exclusively to slag heaps||4%||50|
|Warehouses and bonded warehouses (gaseous, liquid and solid)||7%||30|
|Commercial, administrative, service and residential buildings||2%||100|
In the previous amortization table we can observe the minimum and maximum depreciation rate, so that:
- The maximum is set as a percentage; for example, industrial buildings would be 3%.
- On the other hand, the minimum is the result of the estimated useful period.
For example: 68 years would be 100/68 = 1.47%
5. Redemption of used goods
The properties are considered used when they have been put into operation before they were acquired and they are older than 10 years.
In this case the amortization is different; for example, this kind of properties cannot benefit from the method of accelerated depreciation of SMEs.
These properties can be amortized starting from:
- The acquisition price: you can fold the maximum coefficient of amortization of the official tables.
- The original price: It can be applied to this price the maximum coefficient of the tables. If this value is unknown it can be determined by expert opinion.
6. Amortization of leased properties
Amortization of leased property consists on providing as a spending the 3% of the construction value of the property and this spending is applied proportionally to the days of the year in which the property has been leased, as explained in the article “property deductible expenses”
7. Tax incentives for small companies:
a. Accelerated depreciation
With this method we can benefit from a tax incentive with which our assets can be depreciated more quickly than the expected in the Official Tables. This amortization mode can only be used when we have the small size company condition (net limit on the previous business has to be less than 10 million euros).
In addition to fulfilling the condition of a small sized company, it must also meet that the investment will be made in new tangible fixed assets or real estate investments. These can be amortized by multiplying by 2 the maximum straight-line depreciation coefficient provided for in amortization tables.
b. Accelerated depreciation for investments in job creation
The free depreciation is another tax incentive that involves the subject’s ability to determine the rate of tax depreciation of its assets without having to follow one of those current methods of amortization. The requirements to benefit from the free depreciation are:
- The society must be a small sized one during the tax period in which the investment is made.
- As in the case of accelerated depreciation, investment must be made in new assets.
- The elements of investment must be made available to the company within the tax period in which the society has the small size consideration. The accelerated depreciation is equally applicable to items charged to third parties, for example when executing a work, as well as those constructed by the company itself only if during the period in which the investment will be completed the company will still being a reduced investment one.
- The investment must be accompanied by an increase in average headcount of the company in the 24 months following the tax period in which goods come into operation.
- There is a limit on the amount of investment that can benefit from free depreciation, which is the result of multiplying the figure of 120,000 euros for the increase in staff.
8. Methods of direct or objective estimation:
- Direct estimation: The normal direct estimation is one of the possible systems of income tax eligible by self-employed. Who can pay tax on direct estimation?
- Freelancers who billed more than 60,000 € per year. Below this amount may be taxed in simplified direct estimation.
- Self-employed who have renounced to the simplified regimes or to the modules estimation.
- Objective or modules estimation: Sets an estimate of income from business activities of physical people based on certain parameters. This can be applied only to businessmen and professionals who meet the following requirements:
- Each of its activities has to be included in the Order of the Ministry of Finance and Public Administration, which develops the objective assessment scheme.
- And also the unabridged volume yields in the immediately preceding year cannot exceed:
- 250,000 € for the whole of agriculture, livestock and forestry.
- 150,000 € for all economic activities, except for the above.