German Building Depreciation (AfA): 2%, 2.5% or 3%

Depreciation – Absetzung für Abnutzung, or AfA – is the only block of deductible expenses that works every single year without any cash leaving your account. That is precisely why it decides whether a German rental property carries itself after tax. This guide walks through the calculation step by step: from the tax base, through the correct rate, to the declining-balance option for new builds.

Why AfA matters so much

For income from letting, depreciation is expressly a deductible expense. § 9 (1) sentence 3 no. 7 EStG (the German Income Tax Act) names it directly: "Absetzungen für Abnutzung und für Substanzverringerung, Sonderabschreibungen nach § 7b und erhöhte Absetzungen" – depreciation for wear and tear and for depletion, special depreciation under § 7b, and increased deductions. It reduces your taxable result even though no invoice is paid that year. The purchase price was paid long ago; AfA merely spreads it across the years.

Step 1: The tax base – the building only

The most common mistake happens before the first multiplication. § 7 (4) sentence 1 EStG ties depreciation to the acquisition or production cost of the building. The share attributable to land is not part of that base – land does not wear out.

So a purchase price of 450,000 euros does not produce a base of 450,000 euros, but only the building share of it. This split is not a formality; it is the single biggest lever in the calculation. Every percentage point allocated to the building rather than the land raises your depreciation for decades. Document the split carefully – ideally in the purchase deed itself.

Step 2: The correct rate

§ 7 (4) sentence 1 EStG grades straight-line building depreciation by use and year of completion:

Note the wording: what counts is the completion of the building, not your purchase date. Buy a 1910 building in 2026 and you depreciate at 2.5% – not 3%, however recent the purchase. Under § 7 (5b) EStG the same grading applies to condominium units, part-ownership units and independent parts of buildings.

Worked example: existing flat, built 1998

1. Acquisition cost including incidental costs: 450,000 euros
2. Assumed split: 25% land / 75% building
3. Building tax base: 450,000 euros × 75% = 337,500 euros
4. Completed 1998 – before 2023 and after 1924: 2%
5. AfA per year: 337,500 euros × 2% = 6,750 euros

At a personal marginal tax rate of 42%, this item cuts the tax bill by roughly 2,835 euros a year – without a cent leaving the account. Had the same flat sat in a building from 1910, 2.5% would apply: 8,437.50 euros instead of 6,750 euros, that is 1,687.50 euros more per year. The year of construction is no side note.

Step 3: Check whether a shorter useful life applies

The percentages are standardised assumptions. If the actual useful life is shorter, you may depreciate over that instead. § 7 (4) sentence 2 EStG names the thresholds expressly: less than 33 years in the cases of no. 1 and no. 2 lit. a, less than 50 years for no. 2 lit. b, less than 40 years for no. 2 lit. c.

What "useful life" means is defined in § 11c (1) sentence 1 EStDV (the implementing regulation): "the period during which a building can foreseeably be used in accordance with its intended purpose". For an acquired building the period begins at the point of acquisition (§ 11c (1) sentence 2 no. 3 EStDV). For badly run-down properties this route can accelerate depreciation considerably – but it requires solid evidence for the tax office.

Declining-balance depreciation for residential buildings

Since 2023 there has been an alternative to straight-line depreciation for residential buildings. Instead of the 3% under paragraph 4 no. 2 lit. a, § 7 (5a) EStG allows declining-balance depreciation of 5% – but, and this is frequently misreported, of the respective remaining book value, not of the purchase price. The annual amount therefore shrinks year after year.

The statutory conditions: the building is located in the EU or the EEA, it serves residential purposes, and construction began after 30 September 2023 and before 1 October 2029 – or the acquisition rests on a binding contract concluded within that window, with acquisition taking place by the end of the year of completion. The date in the official notice of commencement of construction governs the start date.

Worked example: new build with 400,000 euros of building cost

Over the first four years the declining-balance route yields 74,197.50 euros instead of 48,000 euros – pulling 26,197.50 euros forward. "Forward" is the operative word: you do not deduct more in total, you deduct earlier. For liquidity in the most expensive phase of a new build, that can still be decisive.

Switching back is permitted: § 7 (5a) sentence 7 EStG expressly allows the move from declining-balance to straight-line depreciation; after the switch the deduction is measured from the remaining book value and the rate under paragraph 4 having regard to the remaining useful life (sentence 8). The reverse move is not provided for. While depreciating on a declining balance, deductions for extraordinary technical or economic wear are not permitted (sentence 6).

Special depreciation under § 7b EStG – on top

For newly created rental dwellings there is an additional special depreciation: up to 5% of the base per year, "in the year of acquisition or production and in the following three years … alongside the depreciation under § 7 (4) or (5a)" (§ 7b (1) sentence 1 EStG). For the current wave of applications – building application or notice after 31 December 2022 and before 1 October 2029 – the following also applies:

• The building must meet the criteria of an "Effizienzhaus 40" with sustainability class, evidenced by the Qualitätssiegel Nachhaltiges Gebäude sustainability certificate (§ 7b (2) sentence 1 no. 2 EStG).
• Acquisition or production cost must not exceed 5,200 euros per square metre of living space (§ 7b (2) sentence 2 no. 2 EStG).
• Of that, at most 4,000 euros per square metre of living space count as the base (§ 7b (3) no. 2 EStG).
• The dwelling must be let for residential purposes for consideration in the year of acquisition or production and the following nine years (§ 7b (2) sentence 1 no. 3 EStG) – otherwise the special depreciation must be reversed (subsection 4).

A new build with 100 m² of living space and 480,000 euros of building production cost comes to 4,800 euros per m² and is therefore below the ceiling. The base for the special depreciation is capped at 4,000 euros × 100 m² = 400,000 euros; 5% of that is 20,000 euros a year, so 80,000 euros over four years. Together with straight-line AfA of 3% on the full 480,000 euros – 14,400 euros – that gives 34,400 euros of depreciation in the first year.

Declining balance and § 7b? The statute is not unambiguous. § 7b (1) sentence 1 EStG speaks of the special depreciation "alongside the depreciation under § 7 (4) or (5a)" – expressly naming the declining-balance route. § 7a (4) EStG, by contrast, provides generally: "For assets in respect of which special depreciation is claimed, depreciation is to be taken under § 7 (1) or (4)." We do not resolve that contradiction here and therefore deliberately compute our example with straight-line AfA. If you want to combine the two, have the constellation checked by a tax adviser first.

A widespread misunderstanding: "§ 7b expires in 2026." § 52 (15a) sentence 1 EStG limits the claim to assessment periods 2018 to 2026 – but expressly only for "§ 7b in the version of Article 1 of the Act of 4 August 2019", that is, for the old wave of applications. For building applications after 31 December 2022, § 7b (2) EStG sets the limit itself: before 1 October 2029. Anyone building today therefore need not assume the relief ends with the 2026 assessment period – the date of the building application governs.

What applies in the year of acquisition

For a full calendar year the calculation is simple. In the year of purchase the question is whether the annual amount must be split into twelfths. The general rule sits in § 7 (1) sentence 4 EStG: the deduction is reduced "by one twelfth for each full month preceding the month of acquisition or production". For declining-balance building depreciation, § 7 (5a) sentence 5 EStG expressly declares that rule to apply accordingly.

For straight-line building depreciation under § 7 (4) EStG the statutory text itself contains no such provision. We therefore do not repeat a figure second-hand here: our examples above compute full years. Clarify the month of acquisition for your specific property with your tax adviser or against the administrative guidance on § 7 EStG.

FAQ

Can I catch up on depreciation I forgot to claim?

Depreciation runs under § 7 (4) sentence 1 EStG "until fully written off" – the period does not extend because you claimed nothing in a given year. A forgotten annual amount is as a rule lost once the assessment can no longer be amended. So check the depreciation line in every return; how it gets there is covered in the guide to the Anlage V.

Do renovation costs increase the tax base?

Only if they are production cost. Maintenance expense is deductible immediately. But if the work falls within the first three years after purchase and exceeds, net of VAT, 15% of the building's acquisition cost, § 6 (1) no. 1a EStG reclassifies it as acquisition-related production cost – and it then works only through depreciation. Details in the article on the 15% threshold.

Does AfA improve my cash flow?

Not directly – it is not a cash movement. But it lowers the taxable result and therefore the tax payment, and that effect very much does land in your account. How this plays out alongside principal repayment and reserves is shown in Calculating the cash flow of a rental property.

This article offers general orientation and does not replace individual tax or legal advice within the meaning of § 3 StBerG. The version of the law in force at the time governs. All statutory citations were verified in full text on 3 August 2026.