Tax tip: Strategic purchase price allocation for property

The allocation of the purchase price between the building and the land plays a decisive role in property taxation. This significantly influences the amount of depreciation and thus the income tax burden. In practice, the buyer aims for the highest possible building value in terms of the apportionment scale in order to generate a high depreciation potential. For the seller, this is irrelevant for tax purposes.

Recently, both the Munich Fiscal Court and the Düsseldorf Fiscal Court have dealt with the question of the appropriateness of such splits. The ruling of the Munich Fiscal Court dated 10 April 2024 (case no. 12 K 861/19) and the ruling of the Düsseldorf Fiscal Court dated 12 March 2024 (case no. 13 K 1262/21 E) confirm the previous case law that the apportionment agreed in the purchase agreement is generally taken as the basis for taxation. A correction is only necessary if the apportionment fundamentally fails to reflect the actual value and appears economically untenable. In the opinion of the Munich Fiscal Court, a deviation of less than 10% from an expert opinion is irrelevant, as this covers minor valuation uncertainties. In contrast, the Düsseldorf Fiscal Court considers a deviation of more than 20% to be significant, which makes a revaluation necessary. However, these judgements also make it clear that there is no single correct allocation standard, as taxpayers, tax offices and tax courts have come to different conclusions in the judgement cases.

In order to create more legal certainty, the Federal Ministry of Finance has published a working aid on the allocation of a total purchase price for a developed property, which was updated in January 2025. This guide provides a standardised procedure for purchase price allocation and checks the plausibility of existing allocations.

Taxpayers can also use this to check their old assets for a correct allocation of acquisition costs. If it turns out that the building share was too low, this can be adjusted for the future and for all open years in order to achieve a higher depreciation base. An example illustrates this: If a taxpayer purchased a property for 500,000 euros in 2000 and agreed a split ratio of 70% for the building and 30% for the land portion, the annual depreciation is 2% of 350,000 euros, i.e. 7,000 euros. However, if in 2025, according to the working aid, the apportionment scale is 80% in favour of the building part, the previously unclaimed depreciation volume of EUR 50,000 can be distributed over the remaining useful life of 25 years. This leads to additional annual depreciation of EUR 2,000, which represents an annual saving of EUR 800 at a tax rate of 40%.

It should be noted that a breakdown of the acquisition costs stipulated in the purchase agreement is accepted for tax purposes, provided that this does not deviate by more than 10% from an appraisal value in the opinion of the Munich Fiscal Court. However, an appeal has been lodged against this judgement, meaning that the Federal Fiscal Court will have to make a final decision on this. The working aid from the Federal Ministry of Finance offers a valuable guide to a standard of apportionment and applies to both current and past property acquisitions.