The article sums up the differences between repairs and technical enhancement and their impacts from the income tax point of view, is a question the answer to which is not always as straightforward as it may appear at first glance since it is essential to distinguish between repair and technical enhancement (or, as some tend to label it, appreciation); a line which is thin indeed.
Let us examine the difference - the definition of technical enhancement, as stated by law, contains two criteria, which, if both met, alter the whole situation and have consequences regarding the income tax. The first aspect is the fact that the related expenses have been incurred on a completed additional storey, an annex and alterations to a building or structure and the reconstruction (alteration to the extent that its purpose or technical parameters are changed) or modernization (an extension of the amenities or the utility value) of fixed tangible assets. The other criterion is the amount of expenses set at CZK 40,000.
If these two conditions are met, all the expenses may not be deducted from the tax base in the given year (or, more precisely, taxable period), but it is compulsory to increase the value of the property by the value of the technical enhancement and gradually depreciate it (i.e. write it off) in the following years. The period of depreciation is determined by the law (20 to 50 years in the case of buildings).
The case mentioned above is quite clear, but what if such an enhancement comes at a price lower than CZK 40,000? It is the property owner's decision if they decide for the scheme we have just outlined or deduct the expenses "with one sweep of the hand".
All in all, it may not be easy to tell a mere repair from a technical enhancement since the difference is not defined too clearly; but the property owners should not despair, if they are not certain, the tax authority officials are ready to help. For an insignificant fee of CZK 10,000, of course...
Jan Vokůrka
