What if the property is located in an area called “Sanierungsgebiet“?
Positive: tax benefits & infrastructure improvement
Owners who invest in their houses for rehabilitation/modernisation typically qualify for tax benefits due to german income tax law § 7h EkStG.
Hint: Don’t start the rehab before you are the legal owner, otherwise you risk not to be able to collect the tax benefits, at least not fully.
What is the main activity of the infrastructure improvements
new sidewalks, mew street surfaces, new street light, more trees, schools refurbished, new kindergardens and new playgrounds. Maybe not all but some of those things.
Negative: fees for re-development
The municipality puts money in the infrastructure, and at the end of the status “Sanierungsgebiet” the owner has to pay a fee based on a appraisal which tries to show the value increase by the “Sanierungsgebiet”
When to pay the fees
Typically the area changes a lot, and at the end of this status (typically running for 10-15 years) the municipality collects a fee that is attached to the relative value increase due to this infrastructure and overall modernisation of the housing in the area.
How to pay in advance or post bone payments
The payment to the municipality can be payed advanced (e.g to avoid a provision of the municipality if you like to sell the building (over a certain amount)) or post boned by a dispute of the administrative decision.
How to avoid the fees at all
One of my lawyers even told me that one could argue that the value increase typically used by the municipality to justify the fees could be neglected at all, because the value in an area without this status went up in the same way.
If you like the contact to this laywer, call me.
How to collect the tax benefits, if you don’t pay tax/small tax
The argument that you don’t have to pay tax (due to your fancy holding structure) leads in the wrong direction, as european tax laws say that the land in which the rental income is produced has the right to collect the tax.
On top the tax benefits have a value and could be collected by another investor, so there is an option to sell the property to this investor, as the tax benefits could be prized in.
The end is near
If the termination of the re-developemt area is near, you should talk with the municipality about a special contract called “Städtebaulicher Vertrag” in order to be able to save the possible tax benefits for the future, or for a future owner.
The construct “Sanierungsgebiet” should be known by every Berlin property investor, as it opens potential as well as possible financial damage to your investment.
All things related to this status are published in the “Berliner
Gesetz- und Verordnungsblatt“.