Planning to Rent Out Your Property? You Will Likely Need an Expert Valuation Report
If you own real estate and decide to rent it out, you are required to declare this income for tax purposes. In practice, renting “under the table” without declaring income is still common — but it can easily backfire for two main reasons. First, it is illegal and may result in retroactive taxation and fines. Second, in the event of an incident such as flooding a neighbor’s apartment or a fire, the landlord remains legally responsible for damages.
In this article, we focus on the situation where the property owner rents out their apartment legally, declares the income, and pays taxes accordingly. Rental income falls under income tax and is taxed at 15%. Annual rental income — for example, from an apartment in Prague — can easily exceed CZK 100,000 (net income). At first glance, the tax may seem high, but the tax base can be reduced — for instance, by mortgage interest, tenant replacement costs, repairs, or most importantly, by depreciation of the rented property. Real estate is typically depreciated over 30 years(wooden structures over 20 years), and the starting point for depreciation is the so-called entry price for depreciation.
How Is the Entry Price for Depreciation Determined?
The entry price for depreciation is determined either by the purchase price of the property or by an expert valuation report. The purchase price can be used as the entry price if the taxpayer acquired the property less than 5 years before renting it out. If the property was acquired more than 5 years before the start of the rental, the entry price must be based on an expert valuation report.
An expert valuation report is also required in cases of inheritance, donation, restitution, or property transfer between related parties. The outcome of the report is the so-called replacement value of the property — the estimated price for which a similar property could be acquired at the time. This valuation must be established no later than the date the rental begins.
If you have decided to rent out your property and need an expert valuation report, please do not hesitate to contact us.