AfA stands for Absetzung für Abnutzung (depreciation for wear and tear). Landlords can depreciate the acquisition cost of a building for tax purposes over many years. The building loses value through use — this loss in value reduces taxable income. Only the building is depreciated, not the land.
Purchase price: €500,000 | Year built 1985 | Location: mid-sized town
Step
Calculation
Result
Total cost (incl. incidental costs)
Purchase price + notary + property transfer tax + agent
€535,000
Deduct land share
25 % (mid-sized town location)
– €133,750
Depreciation base (building share)
535,000 – 133,750
€401,250
Depreciation per year (2 %)
401,250 × 0.02
€8,025 / year
Tax saving (42 % tax rate)
8,025 × 0.42
€3,370 / year
Determining the land share
The German tax office recognises three methods:
Standard land value method: the most precise method – ratio of (standard land value × plot size in m²) to the total purchase price.
Federal Ministry of Finance working aid: a free Excel tool from the tax administration (search term: “Arbeitshilfe Kaufpreisaufteilung”).
Flat rate of 20–30 %: depending on location – not always accepted by the tax office.
Declining-balance depreciation for new builds
Since 2023, investors in new builds (completed from 1 January 2023) can choose between 3 % straight-line and 5 % declining-balance depreciation:
5 % of the respective remaining book value → higher depreciation at first, then decreasing.
A one-off switch from declining-balance to straight-line is possible – not the other way round.
Worthwhile if you have high taxable income in the early years.
Renovations and depreciation
Maintenance expenses (windows, bathroom): immediately deductible as income-related expenses.
Production costs (extension, loft conversion): increase the depreciation base → depreciated over 50 years.
15 % threshold: renovations exceeding 15 % of the building value within the first 3 years after purchase count as production costs (§ 6 (1) No. 1a EStG).
