Property depreciation (AfA): how it works for investors

By Loro Real Estate team · Last updated: July 2026

Depreciation (AfA, “Absetzung für Abnutzung”) is one of a rented property’s most important tax components. It lets investors claim the building’s acquisition costs as deductible expenses over many years, lowering taxable rental income. This guide explains depreciation, rates for existing and new buildings, declining-balance depreciation, special allowances under §7b EStG and the limits of the tax benefit.

Tax rules change. Check all rates and deadlines against current rules before deciding to buy, and apply them to your circumstances with your tax adviser.

What is depreciation, and why does it matter for landlords?

The idea is simple: a building wears out over time. Tax law recognises this by allowing acquisition or construction costs to be depreciated over a standard useful life. Each year, a fixed share is claimed against rental income without that money actually leaving your account in the year. This is why depreciation matters: it lowers taxable property income while rent continues to flow.

The condition matters: depreciation applies only to income-producing, rented property. Owner-occupiers cannot claim building depreciation. For investors who Buy an apartment and let it, depreciation is an essential calculation item. Our guide explains rental income taxation overall: Letting property and taxes.

Straight-line depreciation rates at a glance

Straight-line depreciation under §7(4) EStG is standard: the same percentage of building acquisition costs is deducted annually. Three rates apply to residential buildings:

• 2% per year — buildings constructed from 1925 (the most common existing-apartment case)
• 2.5% per year — buildings constructed before 1925
• 3% per year — residential buildings completed from 2023

The higher rate for recent buildings makes new builds more tax-attractive than they were for many years. But the label “new” or “existing” is not decisive: price, rent, location and depreciation must work together. Our guide compares the two: New-build or existing property as an investment. Please check current rates; legislators have changed them several times in the past.

Depreciation base: building share, land and purchase costs

The full purchase price is never depreciated. Land does not wear out for tax purposes, so it is excluded. The price is split between building and land, with only the building share forming the base. Allocation varies by location and property and is closely examined by the tax office. A clear, well-supported split in the contract or using a recognised calculation tool can therefore have real financial value.

The base also includes allocated purchase costs: property transfer tax (Grunderwerbsteuer; currently 5.0% in Baden-Württemberg), notary (Notar) and land register (Grundbuch; around 1.5–2.0% together) are assigned to the building in proportion to the price allocation, increasing the depreciable base. Financing costs, however, are immediately deductible expenses rather than acquisition costs. Please check current rates and details.

Declining-balance property depreciation: 5% for new builds

The Growth Opportunities Act introduced temporary declining-balance depreciation for new housing. It is optional for construction starting between 1 October 2023 and 30 September 2029: instead of a fixed rate on original acquisition costs, you deduct 5% of the remaining value each year. Deductions are much higher initially, then decline year by year.

This particularly suits investors seeking tax relief in the early financing years, when interest and financial pressure are greatest. Switching later to straight-line depreciation is possible when it becomes more favourable. Whether and when the option pays off depends on the case and requires tax advice. Find assessed new and existing properties locally in our current projects.

Special depreciation for new builds: §7b EStG

New rental housing may qualify for special depreciation under §7b EStG in addition to regular allowances: up to 5% annually for the first four years, on top of straight-line or declining-balance depreciation. A substantial share of building costs can therefore be deducted in the initial phase.

The requirements are deliberately strict: the allowance depends on energy standards, essentially Efficiency House 40 with sustainability certification (QNG), and construction cost caps. Check both conditions and exact current limits before calculating with this allowance. It is a potential bonus for qualifying new projects, not a figure on which to base a purchase decision.

Illustration: depreciation in practice

A simplified example for a rented existing apartment built from 1925 shows the size of the effect:

• Purchase price: €300,000
• Building share: 80% = €240,000 (land share: not depreciable)
• Straight-line depreciation rate: 2% annually
• Annual depreciation: 240,000 × 2% = €4,800

You claim this €4,800 each year alongside loan interest, management and maintenance. Actual tax savings depend on your personal rate: higher income makes each deducted euro more effective. Allocated purchase costs are excluded from this simplified example and would increase the base further. To explore how rent, costs and financing combine into a return, use our interactive property investment calculator for your chosen property.

Limits and common misunderstandings

Valuable as depreciation is, it is often overestimated or misunderstood. Know these three points:

• Depreciation is not a gift. Every deduction reduces the property’s tax acquisition-cost base. If you sell within the ten-year period under §23 EStG, claimed depreciation increases the taxable sale gain. Today’s benefit may therefore be partly recaptured later.
• Renovations are not always immediately deductible. If net repair and modernisation costs in the first three years after purchase exceed 15% of building acquisition costs, they become acquisition-related construction costs under §6(1) no.1a EStG and are deducted only through depreciation, not immediately.
• Property quality before tax effects. No depreciation turns a weak property into a sound investment. Location, condition, lettability and a realistic price must support it. Depreciation improves results but replaces neither due diligence nor attention to risks such as rent default, interest changes, value fluctuations and limited property saleability.

For other tax options available to landlords, see our overview Save tax with property. To understand how depreciation, financing and property selection work together in your circumstances, contact us. In a non-binding initial consultation we look at figures and risks together — since 2018, now for more than 250 clients in Rhein-Neckar and Hessen.

This article is for information only and does not constitute investment, tax or legal advice.

More guides: Save tax with property · Property capital gains tax (Spekulationssteuer)