Tax-Efficient Property Investment – Depreciation, Listed Buildings and Energy Subsidies
Property offers considerable tax planning opportunities in Germany. Depreciation (Absetzung für Abnutzung, AfA), the deductibility of income-related expenses (Werbungskosten) and special subsidy programmes can significantly improve the net yield of a property investment.
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Key points at a glance
- Landlords can claim building depreciation, interest on debt and operating costs for tax purposes.
- Listed buildings and redevelopment areas allow increased depreciation on renovation costs.
- For new rental flats, declining-balance depreciation and a special depreciation allowance are available for a limited period.
- After a holding period of ten years, a sale from private assets is tax-free.
- Tax structuring always belongs in the hands of a tax adviser.
Standard Depreciation (AfA)
Buildings from 1925 onwards: 2% per year on the building share (50-year useful life).
Buildings before 1925: 2.5% per year (40 years).
New builds from 2023: 3% per year (new declining-balance depreciation possible).
The building share is usually 60–80% of the purchase price. The rest is the non-depreciable land value. The split can be specified in the purchase contract or determined by a valuation report.
Listed Properties – Increased Depreciation
Upper Franconia has a remarkable stock of listed buildings. For investors, these offer particular tax advantages:
§ 7i EStG (investors): Renovation costs incurred in agreement with the monument protection authority (Denkmalschutzbehörde) can be depreciated over 12 years at 9% each (years 1–8) and 7% each (years 9–12) – in addition to the standard building depreciation.
§ 10f EStG (owner-occupiers): Owner-occupiers can deduct 90% of the renovation costs over 10 years (9% each year) as special expenses (Sonderausgaben).
Requirement: The measures must be agreed with the monument protection authority before construction begins and confirmed by a certificate on completion.
Energy-Efficient Renovation – Tax-Deductible
Since 2020, owner-occupiers have been able to claim energy renovation measures for tax purposes under § 35c EStG: 20% of the costs (max. €40,000 per property) are deducted from the tax liability over three years. → Energy-efficient renovation
Important Note
Tax structuring for property is complex and individual. The information on this page is for guidance only and does not replace advice from a tax adviser. We recommend agreeing all investment decisions with a tax background with your tax adviser in advance.
→ Land transfer tax in Bavaria | Investment
Example: A Listed Flat in Bamberg
An investor buys a flat in a renovated listed building. Purchase price €300,000, of which €60,000 is old building fabric and land and €240,000 eligible renovation costs.
| Item | Years 1–8 | Years 9–12 |
|---|---|---|
| Listed-building depreciation on €240,000 | 9% = €21,600 per year | 7% = €16,800 per year |
| Standard depreciation on old building fabric (building share, example €40,000, 2.5%) | €1,000 | €1,000 |
| Tax saving at a 42% marginal tax rate | approx. €9,500 per year | approx. €7,500 per year |
After twelve years, the eligible renovation costs are fully depreciated. This requires a certificate from the monument authority and agreement before work begins. Important: listed properties are often more expensive per square metre – the tax advantage should never be the only reason to buy.
The Most Important Tax Levers at a Glance
| Lever | For whom | Guide |
|---|---|---|
| straight-line depreciation (2–3%) | all landlords | Depreciation (AfA) on property |
| declining-balance depreciation, special depreciation | new-build rental flats | Depreciation (AfA) on property |
| listed-building and redevelopment-area depreciation | investors and owner-occupiers in listed buildings | Buying an older building |
| income-related expenses (interest, management, repairs) | all landlords | Calculating rental yield |
| tax-free sale after ten years | private investors | Speculation tax |
| gift with usufruct (Nießbrauch) | families | Gifting a property |
Typical Mistakes with Tax-Driven Investments
- Tax advantage before location: A poor location does not get better through depreciation.
- Overpriced tax-saving schemes: Check whether the price per square metre matches the location.
- Overlooking the 15% limit: Renovations in the first three years can become acquisition-related production costs (anschaffungsnahe Herstellungskosten).
- Hobby activity (Liebhaberei): Without a realistic prospect of a surplus, the tax office will not recognise losses.
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Frequently asked questions
Is a listed property worthwhile for investors?
With a high tax rate and a good location, it can be. The depreciation is attractive, but listed properties often cost more and require care in renovation and maintenance. The decisive factor is whether the property would also be a sensible investment without the tax advantage.
Can I offset rental losses against my salary?
Yes. A surplus of expenses over income from letting and leasing is offset against other income and reduces your tax – provided that a surplus can be expected in the long term.
Is the estate agent's commission on the purchase of an investment property deductible?
Yes, via depreciation as part of the acquisition costs – proportionately for the building share.
Sources & further reading
- gesetze-im-internet.de – § 7i EStG – increased depreciation for listed buildings
- gesetze-im-internet.de – § 7h EStG – increased depreciation in redevelopment areas
- gesetze-im-internet.de – § 23 EStG – private sale transactions
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