tax break

Tax Incentives - Tax incentives in the real estate sector are legal provisions designed to specifically reduce the tax burden on property owners, buyers, or investors. They serve policy objectives such as promoting housing construction, energy efficiency, historic preservation, or wealth creation. Among the most important benefits are depreciation (AfA), special depreciation allowances, tax exemption after the speculation period, and various tax-free allowances for inheritance and gifts.

Depreciation (AfA) for Real Estate

Straight-line depreciation is the most important tax benefit for landlords: For buildings completed after December 31, 2022, the depreciation rate is 3% annually (Section 7(4) of the Income Tax Act), and for older buildings, 2%. Only the building portion is depreciated (not the land). For a rented apartment with a building value of 250,000 euros and a 3% depreciation rate, this results in an annual tax savings of approximately 2,500-3,500 euros (depending on your personal tax rate). Additionally, loan interest, administrative costs, maintenance, and travel expenses are deductible as income-related expenses.

Important: The depreciation base is the building portion of the purchase price, not the total purchase price. The land portion is not eligible for depreciation. An appraisal or a purchase price allocation can help maximize the building portion and optimize the tax base-however, the allocation must reflect actual conditions and withstand scrutiny by the tax authorities.

In practice, optimizing depreciation is one of the most important levers for investors: Those who maximize the building portion in compliance with the law and fully record all deductible costs can significantly reduce the effective tax burden on rental income. A well-advised investor often generates tax losses in the first few years of leasing that can be offset against other types of income-this reduces the tax burden on total income.

Special Depreciation Allowances and Tax Exemptions

In addition to regular depreciation, there are special benefits: Historic Preservation Depreciation (§ 7h/7i EStG) - Renovation costs for historic buildings are 100% deductible over 12 years (landlords) or 90% over 10 years (owner-occupiers). Special depreciation under § 7b EStG - an additional 5% for new rental housing (subject to certain construction cost limits). Tax exemption after 10 years - capital gains from private real estate are fully tax-exempt after the 10-year speculation period has expired (§ 23 EStG). Inheritance and Gift Tax - Family home exemption upon inheritance by a spouse or children (Section 13(1)(4c) ErbStG), provided the heir resides in the property for 10 years.

Particularly attractive for landlords is the combination of depreciation, interest, and income-related expenses: In the first years of renting, tax losses from renting and leasing often arise, which can be offset against other types of income and thus reduce the tax burden on total income.

Also relevant is the tax treatment of energy-efficiency renovation measures: Since 2020, owner-occupiers have been able to claim tax deductions for energy-efficient renovations under Section 35c of the Income Tax Act (EStG)-with a tax credit of 20% of the renovation costs, spread over three years (up to a maximum of 40,000 euros per property). This provision is independent of depreciation and also applies to owner-occupied properties, which otherwise offer few tax deduction opportunities.

Practical Tip for Property Owners in Nuremberg

We recommend that property owners and investors in the Nuremberg metropolitan region fully exploit the tax opportunities available for their properties. The historic preservation depreciation (Denkmal-AfA) is particularly attractive: Nuremberg has an extensive inventory of historic buildings (Old Town, Gostenhof, Johannis, Fürth), and renovation costs can be claimed for tax purposes almost in full. With a renovation investment of 200,000 euros and a top tax rate of 42%, this results in tax savings of approximately 84,000 euros over 12 years.

Requirements for the historic preservation depreciation allowance: The measures must be coordinated with the historic preservation authority before work begins and certified upon completion. A retroactive application is not possible. Consult a tax advisor and an architect experienced in historic preservation-this step is essential to ensure eligibility for the subsidy. Upon request, we can connect you with suitable specialists in the Nuremberg region.

Frequently Asked Questions

Can I claim the real estate transfer tax as a tax deduction?

When purchasing for rental purposes, the real estate transfer tax is part of the acquisition costs and is depreciated via depreciation-meaning it reduces taxable profit over the property’s useful life. An immediate deduction as an income-related expense is not possible. When purchasing for personal use, the real estate transfer tax is not tax-deductible. In Bavaria, the real estate transfer tax is 3.5% of the purchase price-the lowest rate in Germany and thus already an indirect locational advantage.

When is a historic property worthwhile from a tax perspective?

The historic preservation depreciation is particularly worthwhile for taxpayers with a high marginal tax rate (35% or higher). The higher the tax rate, the greater the savings. A prerequisite is that significant renovation costs are incurred-the depreciation applies only to the renovation portion, not to the purchase price of the existing structure. In Nuremberg, historic properties in the Old Town and in Gostenhof often involve renovation costs of 1,500-2,500 euros/m²-these costs are almost entirely deductible and can lead to a significant tax refund for those with high incomes.

What happens if I sell before the 10-year period expires?

The capital gain (sale price minus acquisition costs minus selling expenses) is then fully taxable as a private capital gain (§ 23 EStG). The profit is taxed at the personal income tax rate-for a profit of 100,000 euros and a marginal tax rate of 42%, this means a tax burden of approximately 42,000 euros. Exception: If the property was used exclusively for personal residential purposes in the year of sale and the two preceding years, the profit is tax-exempt even within the 10-year period.

Are there tax breaks for energy-efficient renovations?

Yes. Under Section 35c of the German Income Tax Act (EStG), owner-occupiers can claim a tax credit totaling 20% of the renovation costs, spread over three years (7% each in the first and second years, 6% in the third year), up to a maximum of 40,000 euros per property. Eligible measures include insulation, window replacement, heating system modernization, and the installation of ventilation systems. A prerequisite is that the work is carried out by a specialized contractor and supervised by an energy consultant. Landlords, on the other hand, can deduct such costs directly as income-related expenses or through depreciation (AfA).

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