Depreciation period

Depreciation Period - The depreciation period is the legally defined useful life over which a building is depreciated for tax purposes. It determines how quickly owners of rental properties can claim the building’s acquisition or construction costs as business expenses, making it a key factor in tax planning for real estate investments.

Statutory Depreciation Periods

The Income Tax Act (§ 7 (4) EStG) specifies the depreciation periods based on the year of construction and the building’s use:

Building Type / Year of Construction	Depreciation Rate	Depreciation Period
Residential buildings with building permit applications from 2023	3.0%	~33 years
Residential buildings with building permit applications from 1925-2022	2.0%	50 years
Residential buildings prior to 1925	2.5%	40 years
Commercial buildings from 2023	3.0%	~33 years
Commercial buildings prior to 2023	2.0%	50 years

For commercially used buildings, the 3% rate has also applied to new constructions from 2023 following the increase in the 2022 Annual Tax Act. In cases of a shorter actual useful life-such as for buildings ready for demolition or buildings with particularly worn-out structures-an expert can verify a shortened remaining useful life, which results in a higher annual depreciation rate.

Special Provisions and Accelerated Depreciation

The declining-balance depreciation for new buildings (Section 7(5a) of the Income Tax Act, effective October 2023) starts at 5 percent of the remaining book value and decreases annually. It allows for higher depreciation in the early years and can be switched to straight-line depreciation on a one-time basis if the straight-line amount becomes more favorable.

An expert opinion on the remaining useful life can shorten the depreciation period for older buildings: If a publicly appointed expert confirms a remaining useful life of, for example, 20 years, the depreciation rate increases to 5 percent annually. However, the tax office scrutinizes this option strictly-the expert opinion must be conclusive, comprehensible, and prepared by a recognized expert. Evidence of structural defects, damage, or a lack of modernization must be carefully documented.

Calculation example: A property built in 1960 in Nuremberg-Gostenhof is purchased in 2024 for 400,000 euros (building portion: 300,000 euros). Without an appraisal: Depreciation rate 2% = 6,000 euros/year. With an appraisal indicating a remaining useful life of 20 years: Depreciation rate 5% = 15,000 euros/year - a difference of 9,000 euros annually, which, at a tax rate of 42%, results in a tax savings of approximately 3,780 euros per year.

Start and End of the Depreciation Period

The depreciation period begins on the date of acquisition or completion of the building. The determining factor is economic ownership, which generally arises with the transfer of benefits and burdens (handover), not necessarily with the transfer of title in the land registry. In the year of acquisition, depreciation is calculated pro rata for the remaining months of the year.

The depreciation period ends when the book value drops to zero or the building is sold, demolished, or the rental purpose is permanently discontinued. Once the building has been fully depreciated, no further depreciation amounts may be claimed for the original building-though they may be claimed for subsequent construction costs, which are depreciated as a separate investment over a new period.

Practical Tip for Nuremberg and the Metropolitan Region

In the Nuremberg metropolitan region, we recommend that investors have a remaining useful life appraisal prepared for older buildings (those built before 1925 or buildings from the 1950s to 1970s in dire need of renovation) in order to shorten the depreciation period and increase annual tax savings. The cost of the appraisal, ranging from 800 to 1,500 euros, typically pays for itself within the first year when acquisition costs are high. Publicly appointed and sworn real estate appraisal experts in Nuremberg and Erlangen offer such appraisals; their addresses can be found through the Nuremberg Chamber of Commerce and Industry for Middle Franconia.

Frequently Asked Questions

Can I choose the depreciation period freely?

No, depreciation periods are set by law and depend on the year of construction, type of building, and use. A downward deviation-i.e., a shorter depreciation period with a correspondingly higher annual depreciation rate-is only possible if a recognized expert verifies a shorter actual useful life. The tax office does not recognize arbitrary shortening of the period without substantial justification.

What happens at the end of the depreciation period?

Once the building has been fully depreciated (book value of zero), no further depreciation amounts from the original acquisition can be claimed. However, subsequent construction costs-such as those for extensive modernization measures that go beyond maintenance expenses-can be depreciated over a separate new depreciation period. The depreciation rate is based on the building’s year of construction, not on the date of the modernization work.

Does the depreciation period start over when purchasing a used property?

No, when purchasing a used property, the depreciation rate continues to be based on the building’s original year of construction. However, depreciation begins with the buyer’s new acquisition cost-which is generally a higher amount than at the time of the initial purchase. The seller’s previous depreciation is irrelevant to the buyer; the buyer depreciates their own acquisition cost (building portion). This is an important difference from the approach under corporate law, where residual book values are carried forward.

How is the building portion of the purchase price determined?

For depreciation purposes, only the acquisition cost of the building may be depreciated, not the land portion (land and real estate). With a purchase price of 400,000 euros, it must therefore first be clarified what portion applies to the building and what portion to the land. It is customary to allocate the purchase price based on standard land values: If the standard land value of the property is 150,000 euros according to the appraisal committee, 250,000 euros are attributed to the building-this amount forms the basis for calculating depreciation. The tax office reviews the allocation and may require a correction if the land portion is very low. The tax authorities provide a guide for purchase price allocation on their website, which serves as a recognized basis for calculation. In the Nuremberg metropolitan region, where standard land values in downtown locations have risen significantly, the correct determination of the building’s share has become increasingly important-because the higher the land’s share, the lower the annual depreciation. We recommend consulting with a tax advisor to determine the purchase price allocation for investments of 300,000 euros or more.

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