Tax deduction for renovation of an apartment in a new building

Who is entitled to a deduction for finishing an apartment and when?

Tax deduction for finishing expenses refers to property deductions. It can be obtained on the basis of paragraphs. 4 p. 3 art. 220 of the Tax Code of the Russian Federation along with a deduction for the purchase of real estate. The most important condition is to have an official income and regularly pay the 13% personal income tax.

To receive a deduction for finishing, special conditions must be met:

• the property was purchased at the development stage;
• the object is housing (house, apartment, room or share);
• There is no finishing when purchasing.

In paragraphs 5 paragraph 3 art. 220 of the Tax Code of the Russian Federation there is a direct indication that a deduction for finishing is possible only for “unfinished construction” real estate. Even if you buy housing from a developer, but in a finished house, the tax office will refuse a deduction for finishing costs.

When buying an apartment, you cannot get a tax deduction - none at all, and not just for finishing. This is a special format of real estate, which is legally considered non-residential premises. Property deductions do not apply to apartments.

If you intend to receive a tax deduction, make sure that the contract with the developer stipulates the absence of finishing. The tax office clearly distinguishes between the concepts of “finishing” and “repair”, so be careful with the wording, otherwise you may get a refusal.

About finishing costs specified in the mortgage agreement

When purchasing an apartment with a mortgage, two deductions are provided - a deduction for purchase costs and a deduction for paying interest on the mortgage (clauses 3 and 4 of clause 1 of Article 220 of the Tax Code of the Russian Federation). Sometimes the mortgage agreement specifies two amounts that buyers borrow from the bank. For example, 2 million rubles. — for the purchase of an apartment, 1.5 million rubles. - for its finishing. This is usually done when the sellers have owned the apartment for less than 3 years, which means they will be required to pay a tax of 13% * (the cost of the apartment is 1 million rubles). Here 1 million rubles. This is a standard deduction on which no tax is paid. All this is indicated in clause 17.1 of Art. 217 and paragraphs. 1 item 2 art. 220 Tax Code of the Russian Federation.

Is it possible to include mortgage interest on the amount specified in the loan agreement as the cost of finishing the apartment? In our example with 1.5 million rubles. No, you still won’t get a deduction for this amount. Because deductions can be provided only for interest that is used to purchase housing. This is indicated in paragraphs. 4 paragraphs 1 art. 220 Tax Code of the Russian Federation. This position is in the letter of the Ministry of Finance dated August 17, 2012 No. 03-04-05/7-963.

How much can I get back?

The deduction for finishing is included in the general property deduction of 13% when purchasing an apartment, the maximum amount of which is 260 thousand rubles. This amount includes both the return of the cost of housing and the money spent on finishing. The amount of expenses for both together should not exceed 2 million rubles.

Example

The apartment was purchased for 1.6 million rubles; 400 thousand rubles were spent on finishing. The total was 2 million rubles. The tax deduction will be 13% of these expenses - 260 thousand rubles. If the finishing cost 600 thousand rubles, the total amount of deductible expenses would still remain the same - 2 million rubles, as well as the amount of the deduction - 260 thousand rubles.

When apartment buyers are married and receive official income, each spouse has the right to a tax deduction of 2 million rubles, for a total of 4 million rubles. This feature can be used to increase the amount of your deduction.

Example

The apartment was bought by a married couple for 3.2 million rubles. We spent 800 thousand rubles on materials and finishing work. Each spouse has the right to apply for a deduction of 50% of the costs of purchasing housing (1.6 million rubles) and the costs of finishing (400 thousand rubles) - a total of 4 million rubles. The 13% tax deduction in this case will be 520 thousand rubles.

BSA Senior Analyst Alexey Zubik comments:

I would recommend starting renovations after registering ownership of the apartment. Registration of ownership of an apartment itself does not take much time. If everything is in order with the documents, the procedure will take about five to seven working days.

The law clearly states that no changes can be made to the configuration of the apartment. This is all done for a reason. The fact is that after signing the acceptance certificate for the apartment, the buyer bears all property risks associated with loss or damage to property (both his own and other participants in shared construction). If it turns out that you have already started repair work or changed the layout, then if disputes or interference arise in the registration of ownership, you will have to return everything to its original form, since otherwise there will be a discrepancy between the object transferred to you and the object whose ownership is which you want to register.

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How to properly account for finishing costs

Not all repair costs are accepted as a property deduction for finishing, but only those specified in paragraphs. 4 p. 3 art. 220 of the Tax Code of the Russian Federation. For the rest, a tax refund will not be issued.

The problem is that the tax code does not have an exact list of materials and work related to finishing an apartment. It is best to focus on section 43.3 “Construction finishing works” of the General Classifier of Types of Economic Activities (OKVED).

Section 43.3 of OKVED specifies the following works:

• polishing;
• plastering and painting works;
• covering floors and walls (tiles, parquet, carpet, wallpaper, etc.);
• scraping of floors;
• finishing carpentry work;
• soundproofing works;
• cleaning of the external area;
• installation of doors, windows, door and window frames.

A deduction can be issued for the costs of installing prefabricated kitchen units, as well as cabinets and stairs. There is no information about other pieces of furniture in the classifier, so, most likely, the tax office will refuse to take them into account.

What is included in the tax deduction: what finishing costs can be included

The following expenses can be deducted:

• for the purchase of building materials;
• for the preparation of design and estimate documentation;
• to pay for finishing work.

There is no clear list of works and materials for which tax can be refunded . It is recommended to focus on section 43.3 of the All-Russian Classifier of Types of Economic Activities. Those expenses that are indicated there will be deducted.

Finishing works include:

1. Installation of floors, ceilings, electrical wiring, water supply, heating and air conditioning.
2. Installation of windows and doors.
3. Laying tiles.
4. Painting walls or wallpapering.
5. Installation of kitchen units.

Photo pixabay.com

The costs include the purchase of building materials that are used in carrying out these types of finishing work. For example, primer, wallpaper, mixtures, putty, glue, tiles, etc. The cost of materials is deductible, even if the applicant did everything himself.

List of expenses for which you cannot receive a tax deduction :

• redevelopment of the premises;
• purchase of construction tools;
• purchase of plumbing;
• installation and dismantling of metal-plastic window products;
• purchasing furniture;
• designer services.

What document should I draw up to take into account repair costs?

Acceptance of deductions for finishing costs is possible only if the agreement on the transfer of property expressly states that the living space is transferred without finishing. The following wording is acceptable: “unfinished apartment.”

If the renovation work is carried out by the developer, the contract separately indicates the cost of the property and its finishing. In the case where the finishing is partially completed, a sign is given which works are included in the price and which are not.

The transfer and acceptance certificate states:

• percentage of housing readiness;
• a list of all deficiencies.

The tax inspector has the right to refuse to provide a tax deduction if this information is not provided in the agreement.

Actual finishing costs must be documented . To do this, the taxpayer must provide to the tax office:

• receipts and receipts for the purchase of building materials;
• work contract

How to confirm expenses

The tax office will require documentary evidence of finishing costs, so during the renovation process you need to carefully record all costs of materials and work. The following can be presented as evidence:

• sales and cash receipts (paper and electronic);
• contracts and estimates;
• Bank statements;
• payments and receipts.

The costs of the services of craftsmen will be taken into account when drawing up an official contract for finishing work - preferably with a detailed estimate. As a last resort, you can issue a receipt. Work under an oral agreement without confirmation of payment will not be included in the tax deduction.

The documents must contain the details of construction organizations and individual entrepreneurs, stamps and signatures. If the contract is concluded with an individual, it is necessary to indicate his passport details.

When drawing up estimates and other documents that indicate finishing work, you must definitely check section 43.3 of OKVED - the names must match. The tax office can find fault with even such a trifle and deny a deduction for finishing.

How to apply for a deduction for finishing

We have already written articles about how to get a deduction when buying an apartment and when paying mortgage interest. Now let's talk about how to return 13% of the cost of finishing a home - the cost of materials and work.

The deduction for finishing is issued together with the property deduction when purchasing a home. The same rules apply - you need to contact the tax authorities at your place of residence directly, at the MFC or online through the “Personal Taxpayer Account”.

Documents confirming the right to deduction:

• agreement on the purchase of real estate (in this case it is a DDU);
• Act of Handover;
• payment documents (including confirmation of finishing costs);
• an extract from the Unified State Register of Real Estate (we wrote about it in detail in another article);
• certificate 2-NDFL (issued at work in the accounting department).

You can submit an application in two ways - through your employer or directly to the tax office by filling out the 3-NDFL declaration yourself. Let's figure out which option to ultimately choose in a given situation.

We collect documents and form an application

To obtain the right to a deduction, it is important to collect the necessary documents and correctly formulate an application to the Federal Tax Service. The list of documents includes the following:

• declaration 3-NDFL with a certificate 2-NDFL;
• a copy of the applicant's passport;
• a copy of the agreement, which states that the applicant is the owner of the property (this document must indicate that the living space is provided without finishing);
• a copy of bank checks, a contract with a contractor and other payment documents.

Important!

If the apartment was purchased during marriage, then to the list of documents it is necessary to add a document confirming that the applicant’s spouse agrees to receive the deduction.

After collecting documents, an application is generated. The package is transferred to the tax office the next day after the declaration is drawn up. If the tax deduction is received through the employer, then there is no need for a 3-NDFL declaration. It is enough to write an application in a special form. The rest will be done by the accounting staff of the organization in which you are employed.

It will take about 30 days to verify documents and generate a deduction. When the Federal Tax Service specialists carry out the necessary procedures, an official decision will be made. It must be submitted to the employer's accounting department.

Registration of deductions through the employer

The method is suitable for those who have a high income and want to start returning personal income tax immediately for the current year. In this case, the employer stops transferring 13% of the employee’s salary to the tax office and pays it taking into account this increase. If the income is high, then the deduction will also be appropriate.

What you need to do to apply for a deduction through your employer:

1. Collect documents confirming the right to deduction.
2. Receive notification of the right to receive a property tax deduction. This can be done in three ways - in person at the tax office through an application, at the MFC or online (section “Life situations” / “Request a certificate and other documents”). The document must be issued within 30 calendar days.
3. Submit a notification to the employer’s accounting department with an application for a tax deduction.

As soon as they receive a notice from the tax office at work, they will begin adding a deduction to your salary every month. This document is valid for one calendar year (namely a calendar year, not a year from the date of receipt), after which it will need to be issued again.

Specialists from the legal department of IC Neometry answer:

Registration of property rights is rather of a declarative nature. This procedure is necessary for calculating taxes, accounting with government agencies, and for processing further transactions. But the most important thing is for the developer to abandon the land plot in favor of the shareholders as soon as possible, which is possible only after 100% registration of ownership of all real estate in the residential complex.

Repairs in a new apartment can begin before registering ownership. But keep in mind that according to the law, after signing the transfer and acceptance certificate, the risk of accidental loss or damage to the object passes to the participant in shared construction. That is, if mistakes are made during repair work that lead to the destruction of ceilings, water supply or heating systems, etc., you, and not the developer, will be held responsible. Simply put, there is no direct relationship between repairs and registration of ownership. If you are confident in the contractor, have the necessary resources and competencies to carry out repairs competently, you can begin work at any time, having a signed acceptance certificate in hand.

Self-filing of 3-NDFL declaration

When applying for a property deduction through the tax office, you can return personal income tax for the previous 3 years inclusive. For example, in 2020 you can receive a deduction for taxes calculated in 2021, 2021 and 2017. This is convenient for average and low salaries.

How to file a property deduction with the tax office:

1. Collect documents confirming the right to deduction.
2. Submit documents through the tax office with a completed 3-NDFL declaration or online (section “Life Situations” / “Submit 3-NDFL Declaration”).
3. Wait for a response from the tax office - a maximum of 3 months from the date of filing the application.

If the deduction is approved, then after receiving a notification from the tax authorities, the money will be transferred as early as next month - the entire amount at once. The tax option is convenient because the deduction does not need to be filed every year - you can submit a return for 3 years at once.

How to get back 13% of the cost of the apartment and the interest paid?

As a rule, the authorities are interested in the development of the mortgage market. After all, this means the development of the city, new income, providing housing for young families, etc. Therefore, the law provides for such incentives for citizens as a tax deduction. This is compensation from the tax authorities for your expenses on purchasing housing through a mortgage. Moreover, the compensation is significant - 13% of the cost of the apartment and further finishing work, as well as 13% of the amount of interest you paid. Regardless of the bank you choose. In essence, the tax office returns your income tax to you. That is, this privilege only works for borrowers with “white” income. And it only works once in a lifetime; if you re-mortgage, you will no longer be provided with such compensation. You can receive a tax deduction on the cost of an apartment at a time. To do this, after registering the purchase and sale transaction, you submit the following documents to the employer or submit the following documents to the tax office at the end of the year along with the declaration:

1. The right supporting documents for the apartment; 2. Sale and purchase agreement or agreement on the acquisition of rights to an apartment in a building under construction; 3.Act of acceptance and transfer of the apartment to the buyer; 4. Payment documents confirming the fact of payment of expenses included in the tax deduction (receipts for receipt orders, receipts from the apartment seller, bank statements about the transfer of funds, etc.); 5. Loan agreement.

After the check, you receive the required amount either in full (if your income for the last year was not less than the amount subject to deduction or divided into several years (if the income is less). However, it’s worth immediately making a reservation that the maximum amount subject to tax deduction is currently 2,000,000 rubles. For example, in Moscow, housing prices have long been much higher. Therefore, for any Moscow apartment, compensation from the tax authorities will be, accordingly, 260,000 rubles.

How to get a deduction for interest?

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Memo - main points when receiving a tax deduction for finishing

• The tax deduction for finishing costs is included in the property deduction when purchasing real estate and is issued along with it.
• To receive a deduction, the property must be purchased, unfinished and not be an apartment, that is, non-residential premises.
• Due to the property deduction, you can return 13% of the costs for materials and finishing work, for the development of design and estimate documentation (maximum 260 thousand rubles or 520 thousand in total for spouses).
• All expenses must be supported by documents - checks, contracts and other documents.
• You can apply for a tax deduction yourself by filling out and sending the 3-NDFL declaration (return for the previous 3 years) to the tax office, or through your employer (for the current year).