Tax tip: Special depreciation of residential properties

For landlords of new residential properties constructed after 2022, the Annual Tax Act 2022 adopted in mid-December 2022 provides for a special depreciation and an increase in regular depreciation under certain conditions. This means it is possible to write off up to 32 per cent of the purchase or construction costs of the building in the first four years.

The existing special depreciation pursuant to Section 7b of the Personal Income Tax Act has been extended, and the conditions for the special depreciation have been adjusted or extended. Funding will continue to be provided for the purchase or construction of new rental flats in Germany or the European Union for which an application for a building permit has been submitted or a building notification has been issued after 31 December 2022 and before 1 January 2027.

The subsidy consists in the fact that, in determining his rental income, the landlord can apply special depreciation in the year of purchase or construction and in the three years thereafter in the amount of up to five per cent of the purchase or construction costs of the building per year, in addition to the regular depreciation. Since the regular depreciation for new residential buildings will be three per cent from 2023, the landlord will therefore be able to claim up to 32 per cent of his building costs as depreciation in the first four years.

While previously the subsidy was limited exclusively to new buildings with a construction cost ceiling of EUR 3,000 per square metre of living space, this has been raised by 60 per cent to EUR 4,800. A maximum of EUR 2,500 per square metre of living space is now being funded.

To qualify for the subsidy, any new housing must meet the criteria of an “Efficiency House 40” and have a living space of at least 20 square metres. The tenancy must be for at least the next ten years and must be in exchange for payment.

Own use before the expiry of the ten-year period, a subsequent exceeding of the EUR 4,800 limit within the first three years - for example, due to subsequently accrued acquisition costs - or a tax-free sale within ten years will result in the special depreciation being reversed and the subsequent tax payments being subject to interest.