Partial value

Partial Value - Partial value is a tax valuation standard under Section 6(1)(1) of the German Income Tax Act (EStG), which describes the amount that a hypothetical purchaser of the entire business would allocate to the individual asset (in this case, a property) as part of the total purchase price. It takes into account the property’s function within the business as a whole and may differ from the market value. The partial value is particularly relevant for the valuation of real estate in business assets and plays a central role in accounting, tax deductibility, and partial value depreciation.

Definition and Delimitation

Partial value is based on the hypothetical scenario of a total business acquisition: What would a hypothetical buyer pay for the entire business, and what portion of the total purchase price is attributable to the individual property? Partial value generally lies between the acquisition cost and the market value-but it can also be higher or lower.

In the case of a property necessary for business operations (e.g., a production hall that is indispensable for ongoing operations), the partial value may be higher than the market value because the property has a special utility within the overall business. A buyer of the entire company would pay more for the hall than its pure market price, as they would otherwise have to find expensive alternatives. For a non-operationally necessary property (e.g., a leased office building that is part of the portfolio but has no operational function), the partial value generally corresponds to the market value.

Under tax law: The partial value is the upper limit for capitalization in business assets. Real estate is capitalized upon acquisition at acquisition cost (including incidental costs such as real estate transfer tax, notary fees, and brokerage fees) and is subsequently depreciated gradually through scheduled depreciation. If the partial value permanently falls below the book value determined in this way, partial value depreciation comes into play.

Partial Value Write-Down

A partial value write-down (Section 6(1)(1) Sentence 2 of the German Income Tax Act (EStG)) is possible if the partial value of a property in business assets permanently falls below the book value. The property is then written down to the lower partial value, which reduces taxable income in the year of the write-down and thus generates tax benefits.

The prerequisite is an impairment expected to be permanent-a merely temporary market downturn is not sufficient. The tax authorities scrutinize partial write-downs for real estate extremely critically. Economic fluctuations (e.g., a temporary price decline during a recession) do not justify a partial write-down; structural causes (e.g., long-term vacancy due to the loss of a major tenant, discovery of contaminated sites, removal of an access road), on the other hand, may justify a write-down.

The tax authorities require the following evidence for recognition:

• A current market value appraisal from a recognized expert
• A justification explaining why the impairment is not merely temporary
• Documentation of the factors causing the impairment, supported by reliable evidence

For real estate held as business assets, the tax office generally accepts a partial write-down only if the impairment exceeds 10-15% of the book value, as minor fluctuations are considered temporary.

Obligation to Revalue in Case of Value Recovery

If the value of the property recovers after a partial write-down, the requirement to revalue (§ 6 (1) No. 1 Sentence 4 EStG) applies: The property must be revalued back to the higher partial value-but only up to the amortized cost (acquisition cost minus regular depreciation). Exceeding the original acquisition cost is not permitted for tax purposes. This write-up increases taxable income in the year of the value recovery and generates a corresponding tax liability-an important aspect for long-term tax planning.

Practical Tip for Property Owners in Nuremberg

We recommend that companies and self-employed individuals in the Nuremberg metropolitan region who hold real estate as business assets have the fair market value reviewed regularly-at least every three to five years-by a tax advisor in consultation with a real estate appraiser.

In market phases with falling real estate prices, such as those recently observed in Nuremberg from 2022 to 2024, a partial write-down can significantly reduce the tax burden. Conversely, in the event of a recovery in value, a write-up must be made up to a maximum of the amortized cost. To provide evidence to the Nuremberg Tax Office, a current market value appraisal by a certified appraiser (HypZert, DIAZert, or equivalent) should be available, which methodologically substantiates the permanent impairment.

For commercial properties in Nuremberg’s industrial zones (e.g., Langwasser, Gibitzenhof, Schweinau), structural changes in the manufacturing industry can justify permanent impairments-especially if competition for use ceases or new location factors permanently alter the attractiveness of the site. We would be happy to connect you with suitable experts from our network.

Frequently Asked Questions

What distinguishes the partial value from the market value?

The market value (market value pursuant to Section 194 of the German Building Code) is the price that can be achieved for the property in ordinary business transactions-regardless of its operational use and in relation to a single property. The partial value additionally takes into account the property’s function within the overall business: A property essential to operations may have a partial value that exceeds the market value because a corporate buyer considers the going-concern value. In practice, however, the partial value is often equated with the market value if no special operational circumstances exist and the tax office provides no contrary guidance.

When is a partial write-down possible?

A partial write-down requires that the partial value has fallen below the book value on a permanent basis-that is, for an extended period of time. The tax authorities require: a current valuation report from a recognized expert, proof that the impairment is of a structural nature (not merely a cyclical fluctuation), and documentation of the factors causing the impairment supported by reliable evidence. Typical recognized reasons include long-term vacancy, the discovery of contaminated sites, significant changes to infrastructure, or the loss of important location factors. Pure market price fluctuations without an identifiable structural cause are generally not sufficient.

Does the partial value also apply to rented private real estate?

No, the partial value is a tax valuation standard exclusively for assets in business assets. For rented private real estate (income from renting and leasing), the acquisition cost minus regular depreciation applies as the book value. There is no extraordinary depreciation to the lower market value comparable to the partial value in private assets-impairments in private assets only become tax-relevant upon sale as a capital loss, and even then only within the ten-year speculation period.

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