Property rental tax and depreciation

Don’t want to pay high taxes?

If not, apply property depreciation. You can save the most on taxes by using accounting property depreciation. The annual depreciation of a property represents its gradual wear and tear, and you can deduct this amount from your taxable base.

You can choose accelerated depreciation (higher in the first years) or straight-line depreciation (the more common option).

The basis for calculating accounting depreciation is either the purchase contract (if less than five years have passed between acquisition and the start of rental) or an expert valuation report.

If you use the purchase contract, you must subtract the value of the land (or your ownership share of it) based on the expert valuation.

Property depreciation in practice

Mr. RNDr. Souček bought a 2-room apartment in Prague – Vinohrady in 2015. After seven years, he and his family moved to a larger home and decided to rent out the apartment.

The rental contract was signed on October 1, 2022, with a monthly rent of 30,000 CZK. The income tax (without applying depreciation) would be 4,500 CZK.

Since the tax base can be reduced by property depreciation, Mr. Souček requested an expert valuation report. The court-appointed expert determined the replacement cost of the property to be 8,500,000 CZK (as of the start of the lease, minus the land value share).

Residential units are typically depreciated over 30 years — 1.4% in the first year and 3.4% in subsequent years (of the value determined by the expert report).

  • In the first year, the tax base was reduced by 9,916 CZK (from 30,000 CZK to 20,084 CZK).

  • In the following years, by 24,083 CZK (8,500,000 × 0.034 / 12; i.e. from 30,000 CZK to 5,917 CZK).

  • The monthly tax, instead of 4,500 CZK, is now only 888 CZK ((30,000 – 24,083) × 0.15).

Thanks to the expert valuation report, Mr. Souček saves approximately 43,000 CZK per year.

Which properties can be depreciated?

You can depreciate the majority of property types, such as:

– residential and non-residential units,

– family houses,

– commercial buildings,

– apartment buildings,

– production and storage facilities, etc.

You cannot depreciate properties under cooperative ownership, nor land, as it does not wear out.

If you are interested in preparing an expert valuation report, do not hesitate to contact us.

What else can reduce your taxable base?

The tax base from rental income can also be reduced by:

– mortgage interest,

– maintenance and furnishing expenses,

– contributions to the homeowners’ association repair fund,

– property insurance, and similar costs.