The proposed amendments to personal and corporate income tax regulations foresee significant changes in the taxation of entities and individuals operating in the real estate market. These changes will affect the tax treatment of certain types of transactions and the accounting treatment of specific asset types. This article outlines selected provisions from the currently debated draft laws that may significantly impact property owners in 2026.
Limitation on tax depreciation write-offs for non-fixed assets by real estate companies
In April this year, the TPA blog discussed a developing favorable line of verdicts by the Supreme Administrative Court (“SAC”), which held that the limitation under Article 15(6) of the Corporate Income Tax Act (“CIT Act”) should not apply to real estate companies regarding assets for which no accounting depreciation is made. Since that publication, two additional SAC rulings (April 3, 2025, case no. II FSK 1630/24 and II FSK 756/23) have confirmed this approach.
However, the planned amendment to the CIT Act introduces Article 15(6)(2), which extends the limitation on recognizing depreciation write-offs as tax-deductible costs to assets not subject to accounting depreciation—e.g., those classified as long-term investments measured at market price or fair value.
In practice, this change would end interpretative disputes between taxpayers and tax authorities unfavorably for the former, clearly depriving real estate companies of the right to include such depreciation write-offs in tax costs.
No possibility of retroactive adjustment of tax depreciation rates
Another planned change, expected to take effect on January 1, 2026, concerns the removal of the possibility to retroactively increase or decrease increased tax depreciation rates (used, for example, for buildings and structures used in deteriorated or poor conditions). Adjustments to tax depreciation rates will only be allowed for the current tax year — no later than the deadline for filing the tax return for that year.
In practice, this would mean no possibility of correcting past returns to change depreciation rates (previously confirmed by SAC rulings, e.g., August 7, 2025, case no. II FSK 305/23; July 9, 2025, case no. II FSK 1373/22; May 7, 2025, case no. II FSK 1028/22).
Moreover, under the proposed changes, taxpayers benefiting from income tax exemption will be entirely deprived of the possibility to apply accelerated depreciation rates during the exemption period. Currently, such an option exists, albeit with certain limitations regarding the freedom to decide whether or not to apply reduced rates.
For entities in the real estate sector, where building and structures depreciation constitutes a significant portion of tax-deductible costs, these changes could have a substantial impact on their taxable income.
Changes in taxation of family foundations
In addition to widely discussed changes regarding the so-called lock-up mechanism (non-taxable disposal of foundation assets only after 36 months from their contribution), attention should be paid to the limitation of CIT exemption for income from rental, lease, or similar agreements involving:
- residential buildings, mixed-use buildings (residential part), residential units or parts thereof, unless rented directly by the family foundation exclusively for residential purposes, whereas:
- the exemption does not cover income from accommodation services (e.g., hospitality sector),
- the burden of proof that the property is rented exclusively for residential purposes lies with the family foundation,
- commercial premises intended for 24-hour accommodation.
From 2026, income from short-term rentals, hotel services, or other accommodation services will be subject to CIT. The aim is to exempt only long-term residential rentals, excluding commercial activity.
It is worth noting that lawmakers increasingly shift the burden of proof to taxpayers, requiring family foundations to demonstrate that properties are genuinely rented for residential purposes (similar mechanisms exist in the tax on shifted profits, tax rules on restructuring activities, or classification of benefits as hidden profits under Estonian CIT).
Limitation on use of the housing tax relief
The Personal Income Tax Act (“PIT Act”) is set to change the rules for using the housing tax relief, which allows PIT exemption when income from property sale (within 5 years of acquisition) is used to meet personal housing needs within 3 years after the end of the tax year of such sale.
Under the proposed changes, the term “housing purposes” will be replaced with “meeting personal housing needs,” meaning that to qualify for the relief, the taxpayer must not own or co-own (at least 50%) another property (e.g., residential building, unit, or undeveloped plot).
Exceptions include properties acquired through inheritance, one property under marital joint ownership, or one property right under marital joint ownership, as well as properties transferred within the 3-year period to immediate family (Group I under inheritance and donation tax), the State Treasury, or a municipality.
A transitional provision states that current rules will apply to properties acquired or put into use by December 31, 2025. Thus, current owners or those acquiring/building properties by the end of this year could benefit from the more favorable relief.
Summary
If enacted as proposed, these changes will negatively affect taxpayers operating in the real estate market by limiting their rights to use certain tax solutions. They align with the broader trend of tightening the tax system.
Jan Szymczyk
Supervisor
