Acquisition costs

Acquisition Costs - The acquisition costs of a property include all expenses incurred to purchase the land or building and bring it into an operational condition. They form the tax basis for building depreciation (AfA) and the calculation of capital gains. The legal basis can be found in Section 6(1)(1) of the German Income Tax Act (EStG) and Section 255(1) of the German Commercial Code (HGB).

Composition of Acquisition Costs

Acquisition costs consist of the purchase price and incidental acquisition costs. Incidental costs include:

• Real estate transfer tax (3.5% of the purchase price in Bavaria)
• Notary and land registry fees (approx. 1.5-2% of the purchase price, GNotKG)
• Buyer’s brokerage commission (deductible as incidental acquisition costs for rented properties, but not for owner-occupied properties)
• Appraisal fees for pre-purchase valuation reports
• Surveying costs for property divisions or unclear boundaries
• Development contributions that the buyer assumes after the purchase
• Renovation costs necessary to bring the property into a ready-for-use condition

Calculation and Tax Example

For building depreciation (AfA), the allocation between the land portion (non-depreciable) and the building portion (depreciable) is crucial.

Example - Rented Condominium in Nuremberg-Maxfeld:

Item	Amount
Purchase price	€320,000
Real estate transfer tax (3.5%)	€11,200
Notary and land registry fees (1.8%)	€5,760
Buyer’s real estate agent commission (3.57% incl. VAT)	€11,424
Appraisal costs	€800
Total acquisition costs	€349,184
of which land portion (30%)	€104,755
of which depreciable building portion (70%)	€244,429
Annual depreciation (2% for buildings constructed before 1925)	€4,889

The land portion varies considerably depending on location-in sought-after Nuremberg neighborhoods such as Erlenstegen or Maxfeld, it can account for 40-50%, while in outlying areas of the metropolitan region, it is only 15-25%. The allocation can be agreed upon in the purchase contract, determined according to the BMF allocation letter (asset value method), or through an expert appraisal. The tax office critically reviews the agreed-upon allocation if it deviates significantly from the market value.

Distinction from Construction Costs and Maintenance Expenses

Expenses incurred after the purchase are either maintenance expenses (immediately deductible as income-related expenses) or construction costs (depreciable only through depreciation). This distinction has significant tax implications. Particularly relevant is the so-called three-year rule (Section 6(1)(1a) of the German Income Tax Act (EStG)): If maintenance and modernization costs within three years of purchase exceed 15% of the building’s acquisition cost (net), they are considered acquisition-related production costs and are added to depreciation-rather than being immediately deductible.

Expenses that result in significant new building components or a substantial expansion of the building are also considered production costs (and not acquisition costs). While these are also depreciable, they must be capitalized separately.

Acquisition Costs for Gifts and Inheritance

Anyone who receives a property as a gift or through inheritance follows in the tax footsteps of the legal predecessor: The acquisition costs are the historical costs of the original purchaser. This means that a highly valued inherited property often has only a small or no remaining depreciation amount left-depreciation continues based on the original tax basis. Anyone with flexibility regarding the inheritance (e.g., when purchasing from a community of heirs) can achieve a new, higher depreciation tax basis by making a purchase for consideration at fair market value.

Practical Tip for Nuremberg and the Metropolitan Region

We recommend that investors calculate the acquisition costs and planned renovation costs together with a tax advisor before making a purchase. The 15% limit for pre-acquisition construction costs can be quickly exceeded for older buildings in Nuremberg-a typical Wilhelminian-style building in Gostenhof or the Südstadt often requires extensive investments in electrical systems, heating, or bathrooms after purchase, which together significantly exceed the threshold.

The breakdown of land and building in the purchase agreement deserves special attention: The higher the building portion, the greater the annual depreciation and thus the tax benefit. In downtown Nuremberg locations, it is reasonable to realistically reflect the land portion-however, an overly aggressive shift in favor of the building portion will be corrected by the tax office.

Frequently Asked Questions

Is the real estate agent’s commission included in the acquisition costs?

For rental properties, yes-the buyer’s commission is a incidental acquisition cost and increases the depreciation base of the building. For owner-occupied properties, the real estate agent’s commission is not relevant for tax purposes, as there is no deduction for income-related expenses. Important: Since the introduction of the “buyer-pays” principle in residential tenancy law, the buyer’s commission for real estate purchases continues to apply, but has been limited by the Act on the Distribution of Brokerage Costs (2020) to a maximum of 50% of the total commission, provided the seller has also engaged a broker. In Bavaria, the standard market commission is 7.14% including VAT, which is split equally-so the buyer typically pays 3.57% including VAT.

How is real estate transfer tax treated for tax purposes?

Real estate transfer tax is classified as incidental acquisition costs and increases the tax base. In the case of rental properties, it is allocated proportionally between the building and the land; the portion attributable to the building is deductible via depreciation, whereas the portion attributable to the land is not. Since Bavaria has the lowest real estate transfer tax rate in Germany at 3.5%, this difference is noticeably smaller compared to other federal states (up to 6.5% in North Rhine-Westphalia or Schleswig-Holstein, for example). For a property in Nuremberg with a purchase price of 300,000 euros, the real estate transfer tax amounts to 10,500 euros.

What are acquisition-related production costs?

If maintenance and modernization costs exceed 15 percent of the building’s acquisition cost (excluding land, net of sales tax) within three years of purchase, they are treated as production costs for tax purposes and must be depreciated via depreciation-rather than being immediately deductible as business expenses. The threshold applies to the total amount: even one euro over the threshold means that all costs from the first three years are classified as acquisition-related production costs. Exceptions include routine annual maintenance work (e.g., painting) and expenses for expansions.

Back to the Real Estate Glossary.