Germany's 15% rule: renovation costs after a purchase

You buy a flat in need of work and start straight away. Whether those contractor invoices cut your tax bill in the same year or only over the following decades comes down to a single figure: the 15% threshold for anschaffungsnahe Herstellungskosten — renovation costs incurred close to the acquisition, which German tax law reclassifies as capital expenditure.

Why the threshold decides so much money

For tax purposes, renovation costs land in one of two boxes:

• Erhaltungsaufwand (maintenance expense) — fully deductible in the year of payment. The cash-flow principle applies: "Expenses are to be deducted for the calendar year in which they were paid" (§ 11 (2) sentence 1 EStG).
• Herstellungskosten (capital/production costs) — these increase the depreciation base and only take effect through AfA (depreciation), which for residential buildings means 2%, 2.5% or 3% per year depending on the year of completion (§ 7 (4) EStG).

The same invoice therefore either works in full in one year, or in fiftieths. Under § 6 (1) no. 1a EStG, expenses that would otherwise be maintenance are forcibly moved into the second box once certain conditions are met. That is exactly what anschaffungsnahe Herstellungskosten are.

What the statute actually says

The wording is short and every buyer should know it:

The provision sits in the business-profits part of the act — but it expressly applies to landlords with surplus income too: § 9 (5) sentence 2 EStG declares § 6 (1) no. 1a EStG correspondingly applicable to the deduction of income-related expenses. Private landlords cannot escape it by way of the income category.

Four questions decide the case:

15% of what? The most common miscalculation

The reference figure is not the purchase price but the building share. Land does not depreciate and stays out of it. Anyone measuring against the total price credits themselves with a larger buffer than they have — and crosses the line unnoticed.

What does not count

§ 6 (1) no. 1a sentence 2 EStG expressly excludes two groups:

• Extensions within the meaning of § 255 (2) sentence 1 HGB — an annex, an added storey, an enlargement of usable space. Careful: they stay out of the 15% calculation but are capital costs in their own right, so likewise deductible only through depreciation.
• Maintenance work that typically arises annually. The Federal Ministry of Finance names the routine servicing of lifts or heating systems, clearing blocked or scaled pipes, and meter-reading costs.

Also excluded are costs of remedying structural damage that was neither present nor latent at the time of purchase but demonstrably arose later through the culpable act of a third party or by accident — a natural disaster, for instance. And compensation paid to a tenant for vacating early does not count either, because it is not a repair or modernisation measure.

What many underestimate: this very much does count

This is where the real trap lies. According to the tax administration, the pot also includes:

• Cosmetic repairs — wallpapering, painting walls and ceilings, painting floors, radiators, doors and windows. A close connection with a larger measure is not even a precondition.
• Hidden defects that remained concealed at purchase but were already present. Whether the costs were foreseeable is expressly irrelevant.
• Costs of bringing the building into an operational state and of a material improvement beyond its original condition.

The consequence: the new bathroom, the fresh paint and the rotten roof truss all land in the same total. Anyone who only watches the "big" renovation often breaks the threshold without noticing.

Worked example

A rented flat, built in 1998, is purchased and modernised the following year.

€39,600 is below the threshold of €45,000. The modernisation stays immediately deductible maintenance expense; only the conservatory moves into depreciation as an extension. Had the owner commissioned one more job worth €5,500 in the same period, the total would have reached €45,100 — above the line. The entire amount would then have been reclassified and, at 2% depreciation, would have worked out at a mere €902 per year instead of all at once.

The three-year window in detail

The window runs to the day from the transfer of possession, risk, benefits and burdens. At the end of the period the measures need neither be completed, nor invoiced, nor paid — what counts is the construction work performed by then, estimated if necessary. Paying the invoice only in year four therefore does not help. On a gratuitous transfer the successor steps into the predecessor's three-year window: anyone gifted a recently purchased property inherits the running clock with it.

New since 2026: the updated BMF decree

When the threshold tips retroactively

The 15% test is only final after three years. If the threshold is exceeded in the second or third year — or falls back below it because costs were reimbursed — that is an event with retroactive effect under § 175 (1) sentence 1 no. 2 AO: the tax assessments of the earlier years are corrected. A deduction already granted is therefore not safe while the window runs. If a third party reimburses part of the costs, say through a grant, only the remaining amount enters the 15% calculation.

Three practical consequences

1. Set a net budget up front and keep a running total — including the small invoices.
2. Stretch the timing rather than hope. Whatever is not urgent can be done once the three years have elapsed — after that the provision no longer applies.
3. Spread larger maintenance expense. If you stay below the threshold, larger expenses on privately held buildings used predominantly for residential purposes may be spread evenly over two to five years (§ 82b EStDV) — useful when a full deduction in one year would go to waste.

FAQ

Does the 15% rule apply to an inherited property?

A gratuitous transfer is not itself an acquisition. The heir or donee does, however, step into the predecessor's remaining three-year window.

Does VAT count towards the total?

No. The statute expressly refers to expenses excluding value added tax — only the net amounts of the contractor invoices count.

What about a building with both a flat and a commercial unit?

Where a building is used in different ways and therefore consists of several assets, the test is applied not to the whole building but only to the relevant part of it. The threshold is then examined per asset.

And if I break the threshold — is the money lost?

No, only the timing shifts: the costs increase the depreciation base. What that does to your running numbers is covered in our article on calculating a property's cash flow; where the amounts belong on the form is set out in the Anlage V guide — both part of the portfolio software at renodiary.de.

This article provides general orientation and does not replace individual tax or legal advice within the meaning of § 3 StBerG. It describes the legal position in Germany. The wording of the statute, the current administrative practice and advice from an authorized professional are what count.