The deduction of renovation expenses can reduce the taxation on capital gains from property sales, provided they have been carried out within the last 12 years and contribute to the property's appreciation.

For these expenses to be accepted by the Tax Authority, it is essential to present detailed documentation, such as itemized invoices and receipts.

Renovation works involving flooring, plumbing, electrical installations, and energy efficiency improvements are examples of deductible interventions. Separating material and labor costs may prevent the deduction, as purchasing materials alone does not prove the property's value enhancement.

Proper document organization helps reduce the tax burden and optimize financial returns on the sale.

Renovation costs can be deducted if properly documented

Property owners selling real estate can reduce their taxable capital gains by deducting renovation expenses, provided they are properly documented and have been carried out within the last 12 years.

To qualify for this deduction, the Tax Authority (AT) requires detailed documentation, such as itemized invoices, receipts, and estimates, proving that the renovations increased the property's value.

Which expenses can be deducted?

Deductible expenses include renovations that enhance the quality and value of the property, such as:

 - Replacement of flooring and coverings

 - Renovation of plumbing and electrical systems

 - Modernization of kitchens and bathrooms

 - Energy efficiency improvements (thermal insulation, climate control systems)

 - Exterior work, including facade maintenance

However, for these expenses to be accepted, the tax authority requires that material and labor costs be properly integrated into the provided documentation. Simply purchasing materials without proof of actual renovation work does not qualify for deduction.

The importance of documentation for tax deductions

To benefit from this tax deduction, taxpayers must keep a well-organized record of all expenses, ensuring that invoices clearly specify the services performed and materials used. Without proper documentary evidence, the tax authority may reject the deduction, leading to a higher taxable amount.

This deduction mechanism is especially relevant for properties that are not the owner’s primary residence, as capital gains tax is more strictly applied in these cases. Proper use of this rule can result in significant tax savings for property owners.

Beyond reducing tax liability, deducting renovation expenses encourages property modernization and urban renewal, making the real estate market more competitive and sustainable.