#Depreciation Schedules and Write-offs for Construction Equipment
Depreciation Schedules and Write-offs for Construction Equipment
What are depreciation schedules used for and what do you need to know about write-offs for construction equipment? This article covers everything you need to know about the tax deduction of construction equipment.
Write-offs for Construction Equipment
Construction equipment is classified as "depreciable business assets." Over time, it loses value through use on job sites – though this depreciation often occurs over several years. Equipment doesn't become worthless after one year, but rather loses some value each year.
Because equipment loses value over an extended period, you can't deduct the full purchase cost for tax purposes all at once. Instead, you must spread it over a longer timeframe. This means a portion of the equipment's acquisition cost is deducted from your income each year, reducing your taxable income and therefore your tax liability. This process of offsetting value loss is called depreciation or write-off.
Depreciation Schedules for Construction Equipment
How much you can write off each year depends on two factors: first, the equipment's purchase cost, and second, its useful life. Useful life indicates how long the equipment can be used and thus over how many years it depreciates. To ensure consistency across businesses, there's an official depreciation schedule.
"AfA" stands for "Absetzung für Abnutzung" (depreciation allowance). The depreciation schedule is issued by the German Federal Ministry of Finance and lists the average useful life for various equipment types. Machines can be depreciated over the period specified in the schedule. For the construction industry specifically, there's a depreciation schedule for the construction trade that applies to all equipment purchased after December 31, 2000.
The schedule includes useful lives such as:
- 8 years for mobile cranes
- 4 years for dump trucks
- 6 years for air compressors with combustion engines
- 10 years for construction containers
- 8 years for forklifts
Must You Follow the Depreciation Schedule for Construction Equipment?
The Income Tax Act requires that acquisition costs for depreciable business assets (like construction equipment) with a useful life of more than one year and not classified as low-value assets must be written off over the average useful life specified in the depreciation schedule. Low-value assets can be fully deducted in the year of purchase – however, the threshold is just 800 euros (excluding VAT), so this rarely applies to construction equipment.
One more thing: In the year you purchase the equipment, you can make a proportional write-off – deducting 1/12 of the annual amount for each partial month.
The average useful life in the depreciation schedule doesn't have to match the actual lifespan of the equipment (from purchase to retirement). It simply serves as a standard that everyone follows for tax purposes, based on average experience regarding how long equipment can be used.
Tax Deduction for Rented Construction Equipment
Unlike annual partial write-offs when purchasing new equipment, rental costs for construction equipment can be fully deducted for tax purposes. This is one of the advantages of renting construction equipment. Learn more in our article: Acquiring Construction Equipment: Should I Buy, Lease, or Rent?
This page was automatically translated from German.