Section 7b EStG: 5% Extra Depreciation for Rentals 2026

As of: 2 October 2026 · Reading time approx. 9 minutes

Anyone who creates a new rental dwelling in Germany may deduct up to 5% of the depreciation base per year for four years — on top of the normal building depreciation (AfA). This special depreciation (Sonderabschreibung) sits in § 7b EStG and is currently the most generous depreciation rule German income tax law offers landlords. Its scope is narrow, though: two cost ceilings that are routinely confused, an energy requirement, and a ten-year letting commitment. And since August 2025 the highest tax court has settled that demolishing a house and rebuilding it gets you nothing.

What the provision actually delivers

§ 7b (1) sentence 1 EStG allows the special depreciation "in the year of acquisition or production and in the following three years … up to 5% of the depreciation base per year in addition to the depreciation for wear and tear under § 7 (4) or (5a)". Across the four years that is a maximum of 20% — on top of the regular write-off.

Two points that summaries usually drop:

It is an option, not an obligation. You may claim it in only one, two or three years, and the "up to" in 5% means you may claim less. An unused portion is not lost; it raises the later residual value (BMF directive of 21 May 2025, paras. 61 and 64).
It is an annual write-off. Unlike the straight-line AfA it is not apportioned by month — completion in December still yields the full rate for that year (para. 63 of the BMF directive).

For private landlords the deduction runs through deductible expenses: § 9 (1) sentence 3 no. 7 EStG expressly names "depreciation for wear and tear and for depletion, special depreciation under § 7b and increased depreciation". The amounts therefore land in the same Anlage V (the rental income schedule of the German tax return) as your other costs — our guide to filling in Anlage V walks through the form.

Two application windows – and only one is still open

§ 7b EStG exists in two waves, and they differ in almost every detail. What counts is the date of the building application (Bauantrag) or building notice, not the date of completion.

	Old wave	Current wave
Building application	after 31 Aug 2018 and before 1 Jan 2022	after 31 Dec 2022 and before 1 Oct 2029
Energy standard	no requirement	Efficiency House 40 with sustainability class, certified by the Quality Seal for Sustainable Buildings
Construction cost ceiling	EUR 3,000 per m²	EUR 5,200 per m²
Maximum depreciation base	EUR 2,000 per m²	EUR 4,000 per m²
Last assessment period	2026	not capped in this way

For the old wave, 2026 is the last year that counts at all. § 52 (15a) sentence 1 EStG limits the special depreciation in its 2019 version to assessment period 2026. Sentence 2 makes it explicit: "That also applies if the depreciation period under § 7b (1) has not yet expired." A property with a 2021 building application completed in 2024 therefore loses its fourth year. For building applications after 31 December 2022 this limit does not apply — there § 7b (2) EStG sets the frame itself, running to 1 October 2029. What is meant is the assessment period, not a cut-off date in the calendar: the special depreciation for 2026 is claimed in the tax return for that year — but whether it is due at all turns on whether the dwelling was let for consideration for residential purposes during 2026.

What counts as a "new dwelling" – and what does not

Only "new, previously non-existent" dwellings qualify (§ 7b (2) sentence 1 no. 1 EStG), and they must satisfy the definition of a dwelling in § 181 (9) BewG: a self-contained unit with its own access, kitchen, bathroom or shower and toilet, and a floor area that should be at least 20 square metres.

Crucially, a new build is not the only route. Under para. 26 of the BMF directive, a new dwelling can also arise through

converting or extending existing building space — loft conversions are named expressly, as is the subdivision of existing living space, and
adding a storey or an extension to an existing building that enlarges the floor area.

A mere modernisation, by contrast, is not enough, "even if this involves high costs and significantly improves the fittings of the dwelling" (para. 27). If you are renovating, the relevant mechanism is the 15% threshold for acquisition-related production costs instead — different rules, different deadlines.

The exception renovators should know. Para. 27 closes with a sentence that lifts the rule again: "This does not apply if, prior to the renovation, there was no dwelling meeting the requirements of the definition of a dwelling." So converting a bare loft, a barn or a commercial space into a self-contained dwelling for the first time is not a renovation — it creates a new dwelling.

The two cost ceilings that get confused

This is where most readers lose the thread, because two figures sit side by side doing completely different jobs:

The construction cost ceiling (§ 7b (2) sentence 2 no. 2 EStG) is an exclusion test: if costs exceed EUR 5,200 per m², the special depreciation falls away entirely — not just the excess.
The maximum depreciation base (§ 7b (3) no. 2 EStG) is a cap: at most EUR 4,000 per m² enters the calculation, even where costs are higher.

And one detail that can decide the whole case: the statute says "floor area" (Wohnfläche), but the tax authorities allow the division to be based on the usable area (Nutzfläche) of the entire building — determined by applying the Floor Area Ordinance by analogy, yet, departing from it, including cellars, laundry, drying and storage rooms as well as garages belonging to the dwelling (paras. 49, 50 and 52). The divisor is therefore larger than the pure floor area and the cost per square metre smaller. Alternatively, the gross floor area under DIN 277 may be used (para. 51).

A worked example

An apartment building with four units, building application 2025, completion 2026. Floor area 300 square metres, usable area including ancillary rooms and garages 360 square metres, qualifying production costs EUR 1,620,000.

Step	Calculation	Result
Cost per m² (usable area)	1,620,000 ÷ 360	EUR 4,500 – below the ceiling
Cost per m² (floor area only)	1,620,000 ÷ 300	EUR 5,400 – would have failed
Depreciation base	4,000 × 360	EUR 1,440,000
Special depreciation per year	5% of 1,440,000	EUR 72,000
Straight-line building AfA per year	3% of 1,620,000	EUR 48,600
Write-off in year one	72,000 + 48,600	EUR 120,600

The example assumes that every dwelling in the building qualifies. As soon as non-qualifying areas arise alongside them — an owner-occupied flat, office or commercial space — the costs must first be apportioned between the parts of the building in the ratio of their usable areas, and only the share attributable to the rental dwellings qualifies (paras. 55 and 56 of the BMF directive).

The two rates therefore run on different bases: the straight-line AfA on the full production costs, the special depreciation only on the capped amount. Talking about "8% depreciation" is accurate only where the cost per square metre never reaches the maximum depreciation base. The 3% for the regular AfA follows from § 7 (4) no. 2 (a) EStG for buildings completed after 31 December 2022 — our article on calculating building depreciation explains the boundary with the 2% and 2.5% rates.

After year four: residual-value depreciation

The end of the four-year benefit period does not end the write-off, it changes its basis. Under § 7a (9) EStG the further deductions are measured "on the residual value and the percentage applicable under § 7 (4) taking account of the remaining useful life, or the percentage applicable under § 7 (5a)". In the example above, after four years EUR 288,000 of special depreciation and EUR 194,400 of straight-line AfA have been used; the residual value of EUR 1,137,600 spreads over a computed remaining useful life of 29 years, i.e. roughly EUR 39,228 a year.

Declining-balance AfA and § 7b can be combined. § 7b (1) sentence 1 EStG names the declining-balance AfA under § 7 (5a) EStG expressly, and the BMF directive works the combination through in an example of its own: 5% special depreciation alongside 5% of the respective residual value. Para. 67 goes further and states that the straight-line or declining-balance AfA must be claimed alongside the special depreciation. What cannot be combined with § 7b is the increased depreciation for listed buildings and redevelopment areas: there the anti-cumulation rule in § 7a (5) EStG applies and you have to choose (para. 67).

The ten-year commitment – and when the tax office claws it back

The dwelling must serve "letting for consideration for residential purposes" in the year of acquisition or production and the following nine years (§ 7b (2) sentence 1 no. 3 EStG). The same sentence excludes temporary accommodation, so a holiday let does not qualify. Under para. 35 of the BMF directive the letting must be open-ended or contractually fixed for at least one year. Owner-occupation and rent-free use do not count; where letting is partly below market, the special depreciation is apportioned in the same ratio (para. 32).

§ 7b (4) EStG lists three grounds that reverse the relief retroactively:

The dwelling does not serve letting for consideration for residential purposes within the ten years.
It is sold within the ten years and the capital gain is not subject to income or corporation tax. A gratuitous transfer by way of succession, by contrast, is harmless (para. 76).
The construction cost ceiling is exceeded in the first three years after the year of acquisition or production through subsequent acquisition or production costs — the special depreciation claimed so far must then "be reversed in full with interest" (para. 77).

The third point is the least conspicuous trap: a retrofit in year two that pushes the project past EUR 5,200 per m² takes the whole relief with it. And § 7b (4) sentence 3 EStG makes clear that even final assessments are amended; the assessment period starts afresh for that purpose. The fact that compliance with the ten-year use must be evidenced annually (para. 69) also turns the special depreciation into a documentation task spanning a full decade.

State aid rules: usually a non-issue for private landlords. § 7b (5) EStG ties the special depreciation to the EU de minimis regulation. For the current wave, however, sentence 2 limits that to claimants with income within the meaning of §§ 13, 15 or 18 EStG, i.e. business, agricultural or self-employment income (para. 83). If you let privately and claim deductible expenses, you do not have to check the aid ceilings.

Ten years of evidence, kept in order

RenoDiary keeps loan, rent and invoice data per property, computes AfA and the § 7b special depreciation for Anlage V, and holds tenancy agreements and invoices in the digital vault — exactly the records the ten-year commitment demands.

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What the courts have decided

On § 7b EStG in its post-2019 form there is so far exactly one decision of the Federal Fiscal Court (Bundesfinanzhof, BFH) — and it concerns a situation that is common in practice and that the BMF directive does not address.

BFH, judgment of 12 August 2025 – IX R 24/24

A "new, previously non-existent" dwelling exists only if the building work has increased the stock of dwellings previously present on the plot. Demolishing a house and erecting a new one in its place creates a dwelling that is new in the linguistic sense — but not an additional one. The Ninth Senate derives this from the purpose of the statute, countering the shortage of housing, and applies the same test to conversions, extensions, added storeys and annexes: there, too, the number of dwellings must have risen. The judgment is officially published, so the tax authorities apply it generally. For owners that means: a loft conversion supports the special depreciation only if it yields an additional dwelling — and anyone planning to replace an existing building should check whether the new build can accommodate more units than were there before.

Two qualifications belong with the decision. It expressly concerns § 7b EStG "in the version of the year in dispute (2020)", that is, the old application wave. The decisive wording "new, previously non-existent" appears verbatim in the current § 7b (2) sentence 1 no. 1 EStG, so the reasoning carries over — but there is as yet no senate ruling on the current version. And the Senate notes that "neither the legislative materials … nor the application directive of the tax authorities" address the question; the BMF directive of 21 May 2025 indeed never mentions demolition.

Frequently asked questions

Does § 7b EStG apply to a purchase rather than a build?

Yes, but only within a very short window: on acquisition a dwelling is "new" only if it is acquired by the end of the year of completion (§ 7b (1) sentence 2 EStG). The special depreciation is then available exclusively to the acquirer, not to the developer.

Does a single flat in my own building count?

The object of the relief is the individual new rental dwelling including its ancillary rooms, not the building as a whole (para. 18 of the BMF directive). In a building with several units each dwelling is assessed separately — one owner-occupied flat does not disqualify the others.

Is a KfW 40 certificate enough?

For the current wave § 7b (2) sentence 1 no. 2 EStG requires an Efficiency House 40 with sustainability class, and that must be evidenced by the Quality Seal for Sustainable Buildings. Under para. 19 of the BMF directive both quality levels of the seal are suitable. An energy standard alone, without that seal, is not enough.

What happens on a sale after eight years?

What matters is whether the capital gain is taxable. If it is — which it normally will be inside the ten-year window for private disposals — and the buyer continues letting, the special depreciation is preserved (para. 74 of the BMF directive).

Sources

§ 7b EStG (special depreciation for new rental housing) — Gesetze im Internet (retrieved on 2 October 2026)
§ 7 EStG (building depreciation, declining-balance AfA) — Gesetze im Internet (retrieved on 2 October 2026)
§ 6 EStG (acquisition-related production costs, 15% threshold) — Gesetze im Internet (retrieved on 2 October 2026)
§ 7a EStG (common rules, residual-value AfA, anti-cumulation) — Gesetze im Internet (retrieved on 2 October 2026)
§ 9 EStG (deductible expenses) — Gesetze im Internet (retrieved on 2 October 2026)
§ 52 EStG (application provisions) — Gesetze im Internet (retrieved on 2 October 2026)
§ 181 BewG (definition of a dwelling) — Gesetze im Internet (retrieved on 2 October 2026)
BMF, application directive on § 7b EStG of 21 May 2025 (BStBl I 2025, 1419) — PDF at the BMF (retrieved on 2 October 2026)
BFH, judgment of 12 August 2025 – IX R 24/24 (no special depreciation on demolition and rebuild) — Bundesfinanzhof (retrieved on 2 October 2026)

This article offers general orientation and does not replace individual tax advice within the meaning of § 3 StBerG. Whether a building measure meets the requirements of § 7b EStG depends on the building application, the certificates and the specific area calculation — the official documents and advice from an authorised professional are what count.