Accounting depreciation

Depreciation for Accounting Purposes - Depreciation for accounting purposes (depreciation allowance, AfA) captures the loss in value of a property over its economic useful life in the financial statements. It reduces the book value of the building and, as a business expense or income-related expense, lowers the tax base-without any actual cash outflow. Land is not depreciable, as it is not subject to wear and tear.

Depreciation Rates and Useful Life

The following straight-line depreciation rates currently apply to residential buildings: Year of construction up to December 31, 2022 - 2% over 50 years. Year of construction from January 1, 2023 - 3% over 33 years (Section 7(4) EStG, effective as of the 2022 Annual Tax Act). For buildings in business assets that are not used for residential purposes, the rate is 3% over 33 years. Listed buildings benefit from increased depreciation rates under Sections 7h and 7i of the Income Tax Act (EStG)-here, renovation costs can be depreciated over 8 + 4 years at up to 9% annually.

Depreciation begins in the year the building is ready for occupancy or-in the case of an acquisition-in the year of acquisition, prorated from the month of economic transfer. Someone who acquires a property in November can therefore still claim depreciation for two months of the current year. This seemingly minor detail can have a significant tax impact for high-priced properties.

Special and Accelerated Depreciation

In addition to straight-line depreciation, there are special tax models: The special depreciation under Section 7b of the Income Tax Act (EStG) allows for an additional 5% depreciation in the first four years for new rental apartments (building permit application from 2023, construction costs max. 5,200 euros/m²) - in addition to regular depreciation. For listed buildings, renovation costs are even 100% deductible (spread over 12 years for rental properties, 10 years for owner-occupied properties). For investors, the combination of regular depreciation and special depreciation is a powerful tool for tax optimization.

Since the 2022 Annual Tax Act (JStG 2022), there is also declining-balance depreciation for new buildings completed between October 2023 and September 2029: 5% of the respective remaining book value per year. This regulation results in significantly higher tax savings than straight-line depreciation, particularly in the first few years after completion, making new-construction apartments in Nuremberg more attractive as an investment from a tax perspective.

Purchase Price Allocation as the Basis for Depreciation

The amount of annual depreciation depends crucially on what portion of the purchase price is allocated to the building (depreciable) and what portion to the land (non-depreciable). This allocation is not specified in the purchase agreement-it must be justified in a manner that is verifiable for tax purposes. The Federal Ministry of Finance provides a guide for purchase price allocation, which tax authorities are increasingly using. In cases of deviations from the tax office’s allocation formula, increased depreciation amounts may be corrected during an external audit.

Overview of Depreciation Methods

Depreciation Method	Rate	Duration	Prerequisite	Legal Basis
Straight-line (existing buildings until 2022)	2%	50 years	Rental	Section 7(4) EStG
Straight-line (new buildings from 2023)	3%	33 years	Rental	Section 7(4) EStG (JStG 2022)
Declining balance (new construction 10/23-9/29)	5% of residual value	Variable	Residential buildings, new construction	Section 7(5a) EStG
Historic Preservation Depreciation (Renovation, Rental)	9% × 8 years + 7% × 4 years	12 years	Historic building, renovation area	Sections 7h, 7i EStG
Historic Preservation Depreciation (Renovation, Owner-Occupied)	9% × 10 years	10 years	Historic building, renovation area	Section 10f EStG
Special Depreciation for Rental Housing Construction	+5% × 4 years additional	4 years	New construction starting in 2023, max. €5,200/m²	§ 7b EStG

Calculation example: Condominium in Nuremberg-Gostenhof, purchase price €280,000, building portion 60% = €168,000. Straight-line depreciation 2%: €3,360/year. At a marginal tax rate of 42%: tax savings €1,411/year = €14,110 over 10 years.

Practical tip for property owners in Nuremberg

We recommend that investors in the Nuremberg metropolitan area allocate the building portion of the purchase price in a realistic and transparent manner-tax authorities are increasingly scrutinizing the breakdown of the purchase price between land and building. In Nuremberg neighborhoods with high standard land values (e.g., St. Johannis, Maxfeld), the land portion can account for 40-50% of the purchase price, which significantly reduces the depreciation base. An expert appraisal for the purchase price allocation is almost always worthwhile-the tax benefit from a higher building portion generally exceeds the appraisal costs of 1,500-3,000 euros as early as the first year of depreciation.

Frequently Asked Questions

Can I claim depreciation even if I use the property myself?

For owner-occupied residential property, standard depreciation is not tax-deductible. Exceptions apply to historically protected buildings (Section 10f of the Income Tax Act) and to special depreciation for energy-efficient renovation measures (Section 35c of the Income Tax Act). Depreciation only reduces your tax liability if the property is rented out or used for business purposes. Anyone who owns an owner-occupied property in Nuremberg and wishes to rent it out later should plan the timing of the rental from a tax perspective, as depreciation begins at that point.

What happens to depreciation upon sale?

When selling a rented property within the 10-year speculation period (Section 23 of the German Income Tax Act), the capital gain is taxed-based on the book value reduced by the depreciation. The depreciation claimed thus increases the taxable gain upon sale. After the 10-year period has expired, the sale is tax-free for private individuals. Therefore, anyone who is nearing the end of the 10-year period should schedule the sale for after this date if possible.

How is the useful life of older buildings determined?

If the actual remaining useful life is shorter than the standard useful life, an expert opinion can establish a shorter remaining useful life (Section 7(4), Sentence 2 of the German Income Tax Act). This results in a higher annual depreciation rate. This can be a significant tax advantage, particularly for older buildings in Nuremberg built before 1950-an expert opinion on remaining useful life costs 1,500-3,000 euros, but can generate tens of thousands of euros in tax savings for high-value properties.

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