Tax relief for Building Renovation Works

What is it?

Tax Credit for renovation/refurbishment work

This consisted originally of a tax deduction – a reduction in computing personal income tax (IRPEF) of 36% (ie. a tax credit) of the expenses incurred, up to a total amount not exceeding Euro 48,000 per property unit.

Thanks to successive annual Finance Laws the benefit has been extended such that for expenditure incurred from 26 June 2012 to 31 December 2020, a higher tax credit (50%) is available and the maximum limit is Euro 96,000.  If no extension is granted by the Italian parliament the higher benefit will no longer be available after 31 December 2020.

The tax credit  must be taken in 10 equal annual instalments.

This tax relief is available nationwide.

Tax Credit for purchase of renovated buildings

There is also an income tax credit available, up to a maximum amount of Euro 96,000 euros, for those who purchase renovated residential buildings. The deduction is due in the case of “conservation”  restoration and renovation work carried out by construction or renovation companies and building cooperatives, who sell the buildings within 18 months from the date of completion of the work.

Regardless of the value of the work carried out, the buyer or assignee of the property must in any case calculate the tax credit on a lump sum basis, equal to 25% of the sale or assignment price of the property (including VAT). This deduction must also be divided into 10 equal annual instalments.

What kind of work qualifies for the relief

The work on individual building units qualifies for the tax relief if it falls within the list of contained in a Presidential Decree (380/2001). In summary this includes:

Extraordinary/ Special maintenance

“Manutenzione straordinaria” is a relatively well defined in Italian law. It consists of works intended to to renovate and replace parts of a building, including the structure, and to implement and supplement health, safety and technological services. They must not change the overall volume (cubic metres)  of the building and must not result in a change of use.

Extraordinary maintenance works also include those involving a fractioning or unification of building units with execution of works, even if they involve changes in the surface area as well as the urban load, provided that overall volumetry is not affected.

Examples of extraordinary maintenance:

  • installation of elevators and safety staircases
  • installation and improvement to toilets and shower/bathrooms
  • replacement of external fixtures and windows or shutters with shutters and with modification of material or type of fixture
  • refurbishment of stairs and ramps
  • interventions aimed at energy saving
  • private area fencing
  • construction of internal staircases.

Restoration and conservation restoration

This category includes works aimed preserving  a  property and ensuring  its functionality by means of a set of works which, while respecting the typological, formal and structural elements allow its continued use.

Examples of restoration and conservative restoration work:

  • interventions aimed at the elimination and prevention of degraded situations
  • adjustment of the floor heights in compliance with existing volumes
  • opening of windows for ventilation needs of the rooms.

Renovation

These are works aimed at transforming a building in a way that leads to a building that is  different from the previous one in whole or in part.

Examples of building renovation:

  • demolition and reconstruction with the same volume as the existing building
  • facade modification
  • construction of an attic or balcony
  • transformation of the attic into an attic or the balcony into a veranda
  • opening of new doors and windows
  • construction of bathrooms and toilets expanding the existing areas and volumes.

With regard to the building renovation works eligible for the benefit of the tax deduction, the Tax Agency has made it clear, among other things, the deduction does not apply on the basis of whether the building is  a “new construction”. If the renovation is carried out without demolishing the existing building and by extending the same same, the deduction is only available for expenses relating to the existing part, as the extension is a “new construction.”

Who is entitled to the relief?

The benefit is available not only to owners or holders of rights in rem over the properties on which work is carried out and who bear the costs, but also to a tenant or co-tenant.

The list of potential beneficiaries are :

an owner or the bare owner
a holder of a right in rem to enjoyment (usufruct, use, dwelling or land)
a tenant or the co-tenant
members of  cooperatives
members of partnerships
individual entrepreneurs, only for real estate that is not instrumental (ie. used as a fixed asset in a business activity) or as stock in trade.

Cohabiting family members of the owner or holder of the property in question (spouse, relatives by the third degree and relatives by the second degree) and civil partners, separated spouses,  are also entitled to the deduction, provided they bear the costs and are holders of transfers and invoices:

In these cases, without prejudice to the other conditions, the tax is available if the building consents are in the name of the owner of the property.

For those who purchase a property on which work has been carried out that benefits from the tax credit,  their share of the tax credit is transferred automatically, unless otherwise agreed between the parties.

For DIY-ers ie. those who carry out the work themselves, the tax credit will be available, but only for the costs of purchasing the materials used.

Requirement for Transparent Payment

To get the tax credit payments must be made by bank transfer from an Italian bank or post office account.

The transfer must show:

the reason (causale or description) for the payment, with reference to the law (Article 16-bis of the Presidential Decree 917/1986)
fiscal code number of the recipient of the deduction
fiscal code number or VAT number of the beneficiary of the payment.

This is an example from the Tax Agency web site

Restrct Causale

Costs that cannot be paid by bank transfer (for example, building and planning consent fees,  licence fees and costs, authorizations and notices of commencement of work, withholding tax on professional fees, stamp duty etc. ) may be paid in other ways – ideally by using a debit or card.

Use of Tax Credit

As with any tax credit you need to have taxable income. So if your only income sources are taxed under, for example a flat rate tax regime, or substitute tax regime then you cannot access the credits.

How to get the bonus

The deduction is obtained by indicating the expenses incurred in the tax return (Model 730 or Form PF individual tax return).

Any tax credit not used in whole or in part can be transferred on the sale of the property. This means that, if the parties so agree, the purchaser can continue to use the remaining instalments of tax credit for the rest of the ten year period.

Documents to Keep

  • certification from architect/geometra (surveyor)/director of works to the effect that the works qualify for the relief
  • bank transfer receipt
  • receipt of transaction (for payments by credit or debit card)
  • account debit documentation (bank account statement)
  • invoices for the purchase of the goods, indicating the nature, the quality and quantity of goods and services acquired.

 

Tax Agency Guide Building renovation works – the tax reliefs (Ristrutturazioni edilizie: le agevolazioni fiscali)

Art. 16-bis of Presidential Decree 917/86 (Italian Tax Code)

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