Depreciation (AfA) on PropertyHow Landlords Save Tax

What Is Depreciated – and What Is Not

Only the acquisition or construction costs of the building are depreciated, including the proportionate purchase costs (land transfer tax, notary, land register, agent). The land share does not wear out and cannot be depreciated.

Straight-Line AfA

If you can prove that the actual remaining useful life is shorter – for example with an expert report – you can apply a higher AfA rate. However, the tax authorities set high requirements for such reports.

Declining-Balance AfA for New Builds

For new residential buildings whose construction starts between 1 October 2023 and 30 September 2029 (or which are bought in this period by the end of the year of completion), declining-balance AfA of 5% a year on the remaining value is possible. You can switch to straight-line AfA later. In addition, under certain conditions there is special depreciation for energy-efficient rental flats (§ 7b EStG).

Allocating the Purchase Price

Because only the building share is depreciated, the allocation is decisive. The tax office (Finanzamt) often uses the Federal Ministry of Finance's allocation tool, which leads to a high land share in locations with high land values. An allocation in the purchase contract is generally accepted by the tax office if it is realistic. In Upper Franconia (Oberfranken), where land values are comparatively low, the building share is usually high – an advantage for investors.

Worked Example

Owner-occupied flat in Bayreuth, built in 1994, purchase price €200,000, purchase costs €18,000, land share 15%.

At a marginal tax rate of 42%, the AfA saves around €1,560 in income tax every year – for 50 years.

AfA for Listed Buildings and Redevelopment Areas

For modernisation costs on listed buildings (Baudenkmäler, § 7i EStG) and in formally designated redevelopment areas (Sanierungsgebiete, § 7h EStG), landlords can depreciate 9% a year for eight years and then 7% for four years – i.e. 100% of the eligible costs within twelve years. Upper Franconia has numerous listed buildings, above all in Bamberg, Bayreuth, Coburg and Kulmbach. A certificate from the monument protection authority or the municipality is required, and it should be agreed before work begins.

AfA and Selling

Amounts already depreciated reduce the acquisition costs. If you sell within the ten-year period, they increase the taxable gain. After ten years, a sale from private assets is tax-free – the AfA then remains a permanent benefit. Details: Speculation tax.

Declining Balance or Straight Line? The First Ten Years Compared

A newly built apartment building with building costs of €1,000,000 (construction started in 2025):

Declining-balance AfA brings depreciation forward. This is particularly attractive in the early years, when interest costs and your personal tax rate are high. As soon as the declining-balance amount falls below the straight-line amount, it pays to switch to straight-line AfA – and there is no going back.

Special Depreciation under § 7b EStG

For new rental flats there is, in addition to regular AfA, special depreciation of 5% a year for four years. The main conditions in the current version:

• planning application between 2023 and the end of September 2029,
• the building meets the "Efficiency House 40" (Effizienzhaus 40) standard with the Sustainable Building Quality Seal (Qualitätssiegel Nachhaltiges Gebäude, QNG),
• construction costs below a statutory ceiling per square metre of living space, and the depreciation basis is also capped per square metre,
• the flat is let for residential purposes for payment for at least ten years.

The thresholds have been adjusted several times in recent years. Check the current figures with your tax adviser before you calculate. For developer projects in Upper Franconia we help with the selection, see Project development.

Shorter Remaining Useful Life with an Expert Report

Especially with older buildings, the actual remaining useful life can be well below the 40 or 50 years assumed by law. If you can prove this, you may depreciate at a higher rate – for example 3.3% over 30 years instead of 2%. In 2021 the Federal Fiscal Court (Bundesfinanzhof) relaxed the requirements for such proof, but the tax authorities examine these reports critically.

A qualified report usually costs €1,000 to €2,500. It is worthwhile above all with a higher building value and a high tax rate.

Fixtures and Contents Are Depreciated Too

Not everything bought with the property is part of the building:

• Fitted kitchen: in a let flat it is depreciated as a separate asset over ten years.
• Furniture for furnished lettings: depending on the item, over its usual useful life.
• Outdoor facilities such as fences or paths: usually a separate, shorter useful life.
• Low-value assets up to €800 net: deductible immediately.

If such items are shown separately in the purchase contract at a realistic price, you also save land transfer tax – see Purchase costs in Bavaria.

Planning Maintenance Expenses Wisely

Repairs and modernisations that are not construction costs can be deducted immediately as income-related expenses (Werbungskosten). For larger amounts you may spread the expense over two to five years (§ 82b EStDV) – useful if you do not have enough income in one year to use the deduction in full.

Be careful in the first three years after purchase: if renovation costs exceed 15% of the building's acquisition costs (excluding VAT), they become renovation costs close to acquisition (anschaffungsnahe Herstellungskosten) and can only be written off through the AfA. If you plan an extensive renovation, time the measures carefully. More under Energy-efficient renovation.

AfA on Inheritance and Gifts

If you inherit or are given a let property, you continue the previous owner's AfA – with the same basis and the same rate. No new acquisition costs arise. If, on the other hand, part is transferred for consideration (for example by taking over a loan), a new basis arises for that part. Background under Gifting a property and Inheritance.

Typical Mistakes

1. Land share set too high because the ministry's tool was adopted without checking.
2. Purchase costs forgotten: notary, land register, land transfer tax and agent's fees belong proportionately in the basis.
3. Kitchen counted as part of the building instead of being depreciated separately.
4. 15% limit overlooked for renovations after the purchase.
5. Vacancy without intent to let: without demonstrable efforts to let, the AfA may be lost.

AfA for Partial Letting and a Home Office

If you let part of your property – for example a granny flat (Einliegerwohnung) – you can only depreciate the let part. The split is usually based on living area. An example:

Running costs that affect the whole house (roof, heating) are also taken into account proportionately; costs that only affect the let flat are taken in full. A home office in a flat you live in yourself, by contrast, is not covered through the AfA but through the rules for home offices.

Commercial Property and Business Assets

For buildings held as business assets that are not used for residential purposes and whose planning application was made after 31 March 1985, straight-line AfA is 3%. Business properties are also subject to different rules on sale: gains are taxable regardless of the holding period, but hidden reserves can be transferred in some circumstances. More under Tax aspects of commercial property and Sale and leaseback.

AfA in Practice: Documents and Process

1. Collect the purchase contract and invoices: purchase price, notary, land register, land transfer tax, agent.
2. Determine the land share: using the Ministry of Finance tool, a clause in the purchase contract or an expert report.
3. Calculate the basis: acquisition costs minus land share.
4. Determine the AfA rate: by year of construction and use.
5. Enter it in Annex V (Anlage V) of the tax return: in the first year pro rata from the transfer of benefits and burdens.
6. Carry it forward: document the remaining value every year – important for a later sale.

A tax adviser usually handles this as part of the first tax return after the purchase. The basics of yield are explained in Calculating rental yield.