BMF circular: When renovation costs are immediately tax-deductible – and when they are not

Anyone renovating or carrying out energy-efficiency improvements on a let property should bear the tax implications in mind. In a letter from the Federal Ministry of Finance (BMF) dated 26 January 2026, the tax authorities updated the rules for distinguishing between immediately deductible maintenance expenses and capitalisation-eligible construction costs. This distinction determines whether the costs reduce tax liability immediately or must be depreciated over decades. An immediate deduction usually results in a quick tax refund, whilst capitalised construction costs are generally spread over 50 years.

As early as 2003, the tax authorities had stipulated for the first time that the distinction is based on the so-called ‘key features’ of a flat. Since then, there has been keen anticipation as to whether and how these features would change in light of technical developments in the building sector.  The new guidance also retains the familiar four areas of fit-out: heating, plumbing, electrical installations and windows. Anyone carrying out significant improvements in at least three of these areas triggers what is known as a ‘standard jump’. In this case, the costs are treated as construction costs and must be depreciated over the useful life of the property.

Such a ‘standard jump’ may occur, for example, when an old gas or oil heating system is replaced by a modern heat pump, a bathroom with outdated fittings is completely refurbished, or an obsolete electrical installation is replaced with new wiring and additional sockets. Replacing single-glazed windows with double-glazed models may also be an indication of this. The key requirement is that a significant improvement is achieved in at least three of the four areas mentioned.

The latest letter brings a welcome change: Thermal insulation is explicitly not included among the key building features. Work on the façade or insulation measures therefore generally remain immediately tax-deductible, even if they are significant in terms of energy efficiency. The standard at the time of acquisition is decisive when assessing whether a significant improvement has been made. In the case of inheritances, the date on which the deceased purchased or built the property is taken into account. What was considered an average standard at that time may be restored today without automatically incurring construction costs. 

Renovations carried out in several stages are now assessed over a shorter period: The tax office now only examines the last three years to determine whether a “renovation in instalments” leads to a significant improvement overall. Anyone purchasing a new property must take particular care: within the first three years after purchase, the strict rules on production costs incurred shortly after acquisition apply. If the modernisation costs during this period exceed 15 per cent of the building costs (net in each case), all measures – even cosmetic repairs or thermal insulation – must be capitalised as construction costs. It is then no longer necessary to check whether there has been a significant improvement.

Landlords should check, prior to modernisation works, whether three of the four features are affected and whether this results in a ‘standard jump’. Thermal insulation measures, on the other hand, can be claimed for tax purposes immediately if they are carried out three years after acquisition. In the case of newly acquired properties, it may be advisable to carry out major works only after the three-year period has elapsed.