How do I optimise rental property depreciation (AfA) in Germany?

• You can depreciate the building (not the land) used for rental.
• Determine a reasonable land-to-building split using local data or official guidance.
• Choose the appropriate linear depreciation rate based on the property’s characteristics under the rules in force when you place it in service. Use conservative illustrative rates when planning, but confirm current law before filing.

• Building structure and integral components.
• Certain modernisations that extend the building’s useful life.
• Land is not depreciable. Furniture and appliances may be depreciated separately on their own useful lives.

• Use a valuation or local standard land values to justify the land share.
• Keep all evidence (valuation report, municipal references). An excessive land share shrinks your AfA; too low may be challenged: documentation is key.

• Initial renovation costs shortly after purchase can be classified as acquisition-related in some cases and thus capitalised, increasing the depreciable base: rules are technical, so plan ahead.
• Ongoing repairs are usually deductible as expenses in the year incurred; improvements that extend useful life are capitalised and depreciated.
• If you plan big works, model whether doing them before vs after first rental improves deductions and cash flow.

• Purchase price: €400,000.
• Land–building split: 20% land (€80,000) / 80% building (€320,000).
• Assume an illustrative linear rate of 3% (verify your actual allowed rate).
• Annual AfA: €320,000 × 3% = €9,600.
• If you replace the heating system for €12,000 and it’s treated as capitalised improvement, you’d depreciate it over its useful life alongside the building.

• Document the land–building split with independent sources.
• Track capitalised vs immediate expenses; label invoices clearly.
• Maintain a component list for larger items (roof, heating, windows) with dates and costs.
• If converting use (e.g., attic to apartment), note the date placed in service for AfA on the new component.
• Coordinate AfA with interest, maintenance, management, and travel deductions to manage taxable rental income.

• Using a guess for land value without support.
• Capitalising everything or expensing everything: know the difference.
• Forgetting to start AfA when the unit is ready for rental, even if still vacant.
• No documentation for renovations: hard to defend in an audit.

1. Obtain a valuation or municipal evidence for land value.
2. Create a simple asset register for the property.
3. Model AfA and cash flow with our Property Investment Calculator.
4. Confirm current depreciation rules with your tax advisor before filing.

• AfA: depreciation deduction.
• Herstellungskosten: costs of construction/improvement (capitalise).
• Erhaltungsaufwand: maintenance/repairs (expense).
• Bodenwert: land value.
• Nutzungsdauer: useful life.

⚠️ IMPORTANT LEGAL DISCLAIMER:

This content is for educational and informational purposes only and does not constitute financial, tax, legal, or investment advice. You should not rely on this information as a substitute for, nor does it replace, professional financial or tax advice. Always consult with qualified professionals (tax advisors, financial planners, lawyers) before making any financial decisions or taking any actions based on this information.

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Disclaimer: This is general information and may differ for individual cases. Learn more about financial planning with Financemate in a discovery call. Always confirm current rules and thresholds with your advisor.