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

Updated: 11 September 2026 · Reading time approx. 9 minutes

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:

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 production costs of a building also include expenses for repair and modernisation measures carried out within three years after the acquisition of the building, where those expenses, excluding value added tax, exceed 15% of the acquisition cost of the building" (§ 6 (1) no. 1a sentence 1 EStG).

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:

TestWhat matters
1. An acquisition?Only a purchase for consideration starts the clock. Anyone who built or inherited steps into the predecessor's position.
2. Within three years?Counted to the day from the transfer of possession, benefits and burdens — not from the notarial deed or the land-register entry.
3. Repair or modernisation?Measures on the building itself or on its fixtures.
4. Above 15%?Net of VAT, measured against the acquisition cost of the building.

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.

Rule of thumb: first split the purchase price into land and building, then take 15% of the building share. Every portion of the incidental purchase costs you allocate to the building raises the reference figure and therefore your headroom.

What does not count

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

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.

A solar array on the roof also sits at the edge of this dividing line: for income-tax purposes it is treated as an independent movable asset and is therefore not part of the building. Which limits apply there instead, and why the income from it is usually tax-free, is covered in the article on solar panels on rental property.

What many underestimate: this very much does count

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

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. If the fabric turns out to be beyond saving, it does not get better: the same three years carry a second, independent presumption under which demolition costs and the building's residual value are not immediately deductible either.

Worked example

A rented flat, built in 1998, is purchased and modernised the following year. Note the second line: the reference figure is the acquisition cost of the building, not the total purchase price. How that purchase price allocation between land and building is determined therefore also decides how much renovation you can fit below the threshold.

Separately stated fixtures pull in the same direction: they reduce the acquisition cost of the building and therefore the threshold – so the saving on property transfer tax on fixtures in the contract costs you a little headroom here.

ItemAmount
Total purchase price€400,000
of which land (25%)€100,000
Acquisition cost of the building (75%)€300,000
15% threshold€45,000
Planned measures, net€52,000
less conservatory annex (extension)−€12,000
less heating service (annually recurring)−€400
relevant amount€39,600

€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. When work counts as performed is therefore a question with a price tag — the decisive moment and its consequences are covered in the article on accepting contractor work. 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

Current: by decree of 26 January 2026 the Federal Ministry of Finance restated this distinction, replacing its earlier decrees of 18 July 2003 and 20 October 2017. It applies to all open cases. Particularly relevant in practice: for a so-called Sanierung in Raten (renovation in instalments) — several individually harmless phases of work that together markedly raise the building's utility value — the rule is now that such an overall measure is generally to be assumed where the construction work was carried out within a period of three years. Anyone deliberately spreading a renovation over several years should know this observation period.

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. If you are totalling per contractor anyway, you cover a second duty at the same time: from the third let flat the construction withholding tax for landlords applies, sending part of every construction invoice straight to the contractor's tax office.
  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. Stretching has a limit of its own, though: push the refurbishment far enough that a new building is created and then sell, and you can end up in a commercial property trade — in which case the disposal gain is taxable even after ten years.
  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. Which four conditions have to be met and what a sale does to the balance is covered in spreading maintenance costs over 5 years. In a condominium the expense usually comes out of the common purse; how much should be sitting there is covered in maintenance reserve: how much per m².

Keep the threshold in view — automatically

RenoDiary totals your renovation invoices per property, knows the purchase date and the building share, and shows you at any time how much headroom is left before the 15% threshold. Including Anlage V preparation, depreciation and a digital document vault.

Try it for free

What the courts have decided

The statute does not spell out what counts as a „refurbishment or modernisation measure" — the Federal Fiscal Court (Bundesfinanzhof, BFH) settled that in three landmark judgments handed down on the same day and has refined it since. The line: the scope is wide, but not without limits.

BFH, judgment of 14 June 2016 – IX R 22/15

Cosmetic repairs — wallpapering, painting walls, floors, radiators, doors and windows — count towards capitalised acquisition-related production costs; no special spatial, temporal or substantive link to a larger refurbishment is required. In practice: simply redecorating a newly bought flat counts towards the 15% calculation, not just the „big" renovation.

BFH, judgment of 14 June 2016 – IX R 15/15

Costs incurred to bring the acquired building into an operational state — a full window replacement in the decided case — are not separate acquisition costs deductible outside the rule. § 6 (1) no. 1a EStG takes precedence over the commercial-law classification in § 255 HGB. For buyers: routing renovation costs around the 15% test via „operational readiness" does not work.

BFH, judgment of 20 September 2022 – IX R 29/21

A settlement paid to a tenant to secure early vacation of the flat ahead of a planned refurbishment is not a building measure — it is merely occasioned by one. It therefore falls outside the 15% threshold and stays immediately deductible, even where the refurbishment itself exceeds the threshold.

Frequently asked questions

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. For a commercial unit the VAT can even come back in full if the landlord opts to tax the rent; how the VAT option for commercial letting works, and who it binds for ten years, is covered in its own article.

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.

Sources

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.