Purchase price allocation: splitting land from building
The purchase contract states one number. For the tax office there are two. The land beneath your property does not wear out and is therefore never depreciated – only the building on it. How the total price is split between the two decides every depreciation instalment for decades. This article covers the standard that split must meet, how the official worksheet of Germany's Federal Ministry of Finance (BMF) calculates it, and what to do when its result does not fit your property.
Why the split decides your tax bill
For a let property, depreciation (Absetzung für Abnutzung, AfA) is a deductible expense: § 9 (1) sentence 3 no. 7 EStG explicitly lists “depreciation for wear and tear and for depletion of substance, special depreciation under § 7b and increased depreciation”. The tax base under § 7 (4) EStG is the acquisition or production cost of the building.
The BMF describes the task in exactly those terms: to determine the tax base for building depreciation it is “frequently necessary in practice to allocate a total purchase price for a developed property between the building, which is subject to depreciation, and the non-depreciable land”.
The land share does not disappear – it stays on the books as the acquisition cost of the land and only matters on a later sale, if the gain falls inside the period of § 23 EStG. Over the holding period it produces no deduction at all. A building share set too low is therefore not a deferral but a permanently lost deduction.
The standard: ratio of market values, not the residual method
The obvious calculation – take the standard land value times the plot area off the purchase price and call the remainder the building – is precisely the one that is not permitted. According to settled supreme court case law a total purchase price is “not to be allocated under the so-called residual value method, but according to the ratio of the market values or partial values of the land on the one hand and the building on the other”, as the BMF puts it in the introduction to its worksheet.
In practice this means both sides are valued separately and the purchase price is then distributed in the ratio of those two values. If you pay more or less than the sum of the values determined, one side is not adjusted alone – both shares are stretched or compressed proportionally.
Which method applies follows from § 6 (1) ImmoWertV, Germany's property valuation ordinance: the comparative, income and asset value methods rank equally and are to be chosen “according to the type of valuation object … the choice must be substantiated”. The BMF worksheet requests data in exactly that order and works with the first method for which it is available – so with known rents, the income value method, which the instructions say ensures “an appropriate determination of market value, in particular for yield properties”.
What belongs in the amount being split
What gets allocated is not the bare purchase price but the total acquisition cost. § 255 (1) HGB is explicit: “Acquisition cost also includes incidental costs as well as subsequent acquisition cost.” The BMF instructions get specific and name as incidental acquisition costs to be included “for example real estate transfer tax, agent fees and notary costs”.
The land value itself is open to you: the standard land value under § 196 (1) BauGB is the average location value within a value zone, and § 196 (3) BauGB states expressly: “Anyone may request information about the standard land values from the office.” No tax office and no appraiser needed.
The “Hinterland” discount on large plots
One detail that moves a lot for single- and two-family houses with big gardens: where the local valuation committee has not published a value-determining plot size for the reference plot, the BMF instructions state that for single- and two-family houses there are “no objections to treating an area of up to 500 m² as a customary plot size and valuing it at the full standard land value … and to assuming 25 percent of the standard land value for the remaining so-called ‘Hinterland’ area”.
On a 900 m² plot with a standard land value of €320 per m², that is not €288,000 of land value but 500 m² × €320 = €160,000 plus 400 m² × €80 = €32,000, together €192,000. The difference of €96,000 shifts into the building share – and therefore into your depreciation.
Worked example: an allocation from start to finish
A let single-family house, built in 1998, purchase contract in 2026. Plot 500 m², standard land value €320 per m². The provisional building value determined with the worksheet is €240,000.
| Step | Calculation | Result |
|---|---|---|
| Purchase price per contract | – | €400,000 |
| Incidental acquisition costs (transfer tax, notary, land register, agent) | – | €34,000 |
| Acquisition cost to be allocated | €400,000 + €34,000 | €434,000 |
| Land value | 500 m² × €320 | €160,000 |
| Building value (method value) | – | €240,000 |
| Sum of the values | €160,000 + €240,000 | €400,000 |
| Land share | €160,000 ÷ €400,000 | 40% |
| Building share | €240,000 ÷ €400,000 | 60% |
| Acquisition cost of the land | €434,000 × 40% | €173,600 |
| Depreciation base of the building | €434,000 × 60% | €260,400 |
| Annual depreciation (built 1998 → 2%) | €260,400 × 2% | €5,208 |
The 2% rate follows from § 7 (4) sentence 1 no. 2 lit. b EStG: residential buildings completed before 1 January 2023 and after 31 December 1924. For completions after 31 December 2022 the rate is 3%, for buildings finished before 1 January 1925 it is 2.5%. Which rate applies to your property and when a shorter useful life is available is set out in detail in German building depreciation (AfA).
What ten percentage points are worth
The allocation does not act once but in every year of the holding period. The same property, once at a 60% and once at a 70% building share:
| Building share 60% | Building share 70% | |
|---|---|---|
| Depreciation base | €260,400 | €303,800 |
| Annual depreciation (2%) | €5,208 | €6,076 |
| Additional depreciation per year | €868 | |
| Tax effect per year (assumed tax rate 42%) | €364.56 | |
| Over the full write-off period (50 years) | €43,400 more depreciation → €18,228 tax effect | |
Ten percentage points are worth roughly €18,000 on this property – for a figure that often does not even appear in the purchase contract. To run the effect for a specific property, the mechanics are in our article on rental property cash flow, where depreciation enters after-tax cash flow as a non-cash item.
When the tax office's allocation does not fit
The worksheet is a standardised procedure – it does not know your property, and the BMF concedes as much: “This is a qualified estimate that can be rebutted with expert reasoning.” Special object-specific property characteristics within the meaning of § 8 (3) ImmoWertV “are not taken into account within the worksheet for standardised purchase price allocation”.
Two mistakes that regularly cost money
- Forgetting the incidental costs. Transfer tax, notary, land register and agent belong in the acquisition cost under § 255 (1) HGB and are allocated in the same ratio. Anyone splitting only the contract price gives away the building share of the incidental costs – 60% of €34,000 in the example above.
- Never looking at the allocation again. The split sets the depreciation base for decades. It is also the reference figure for the 15% threshold of § 6 (1) no. 1a EStG, because what counts there is the acquisition cost of the building, not the total purchase price. How the two interact is covered in Germany's 15% rule for post-purchase renovation costs.
Frequently asked questions
Can I fix the allocation in the purchase contract myself?
Seller and buyer can state an amount for the land in the contract, and often do. Whether the tax office follows it depends on the individual case – the worksheet expressly also serves “to check the plausibility of an existing purchase price allocation”. An allocation agreed in the contract should therefore match the actual value relationships and be capable of substantiation; have it reviewed for tax purposes before notarisation.
Does the allocation also apply to a condominium?
Yes. A condominium carries a co-ownership share in the land, and that share is not depreciable either. The BMF worksheet expressly covers condominium ownership; where suitable comparative factors are available, the instructions state that for condominiums the comparative value method is “to a particular degree an appropriate method”.
Building share, depreciation and cash flow in one place
Store purchase price, incidental costs, land value and build year per property – RenoDiary derives the depreciation from it, feeds it into after-tax cash flow and keeps the figures ready for the Anlage V tax form.
Start for freeSources
- § 7 EStG (depreciation, building rates) — Gesetze im Internet (retrieved on 5 August 2026)
- § 9 EStG (deductible expenses) — Gesetze im Internet (retrieved on 5 August 2026)
- § 6 EStG (post-purchase production costs, 15% threshold) — Gesetze im Internet (retrieved on 5 August 2026)
- § 23 EStG (private disposal transactions) — Gesetze im Internet (retrieved on 5 August 2026)
- § 255 HGB (acquisition cost, incidental costs) — Gesetze im Internet (retrieved on 5 August 2026)
- § 196 BauGB (standard land values) — Gesetze im Internet (retrieved on 5 August 2026)
- § 6 ImmoWertV (valuation methods) — Gesetze im Internet (retrieved on 5 August 2026)
- BMF, worksheet for allocating a total purchase price for a developed property — BMF data portal (retrieved on 5 August 2026)
- BMF, instructions for the purchase price allocation calculation, as at March 2026 — PDF at the BMF (retrieved on 5 August 2026)
This article provides general orientation and does not replace individual tax or legal advice within the meaning of § 3 StBerG. What governs is the wording of the law as applicable at the time, the circumstances of the individual case and advice from a qualified professional.