AfA (Absetzung für Abnutzung)
Depreciation - How the German tax system lets you write off property value
AfA (Absetzung für Abnutzung) is the German term for depreciation on investment properties. It's one of the most powerful tax benefits available to real estate investors in Germany.
How It Works
When you buy an investment property in Germany, the tax office allows you to "write off" the building portion of your purchase over time. The logic: buildings wear out, so you should be able to deduct that wear and tear from your taxable income.
The rate depends on when the building was completed (§7(4) EStG):
- Completed before January 1, 2023: 2% per year over 50 years
- Completed after December 31, 2022: 3% per year over ~33 years (introduced by the Annual Tax Act 2022, JStG 2022)
This means if your post-2022 building is worth €400,000, you can deduct €12,000 per year — 50% more than the old rate.
Real Example
Property Purchase Breakdown:
- Total purchase price: €500,000
- Land value (not depreciable): €100,000 (20%)
- Building value (depreciable): €400,000 (80%)
Annual Tax Benefit — post-2022 building (3% rate):
- Annual AfA deduction: €400,000 × 3% = €12,000
- Your marginal tax rate: 42%
- Annual tax savings: €12,000 × 0.42 = €5,040
Pre-2023 building (2% rate): €400,000 × 2% = €8,000 deduction → €3,360 tax savings
Key Points to Remember
- Only the building value counts: Land doesn't depreciate, so you can only deduct the building portion
- The rate depends on completion date: 3% for buildings completed after December 31, 2022; 2% for buildings completed before that date
- It's automatic: You claim AfA every year you own the property
- The higher your income, the more you save: If you're in a 42% tax bracket, every €1 of AfA saves you €0.42 in taxes
- It reduces taxable income, not property value: AfA is a tax calculation only—your property can still appreciate in real value
Common Misconception
"Depreciation means my property is losing value"
False! AfA is purely a tax concept. While you're "depreciating" €12,000/year on paper for tax purposes (at the 3% rate for a post-2022 building), your property might actually be appreciating €15,000/year in real market value. These are completely separate concepts.
Related Terms
Sonder-AfA(Sonder Absetzung für Abnutzung)
Sonder-AfA is an enhanced depreciation benefit for newly built properties. It allows you to deduct 5% annually for the first 4 years, in addition to the standard 2% AfA.
Tax Savings(Steuerersparnis)
Tax savings from real estate come from deducting property expenses (interest, depreciation, costs) from your taxable income, reducing the amount of income tax you pay.
Building Value(Gebäudewert)
Building value (Gebäudewert) is the portion of the property purchase price allocated to the structure itself, excluding land. Only the building value can be depreciated with AfA.