A new regulation, known as the Growth Opportunities Act, is intended to stimulate the real estate market and attract investors with fresh incentives. The focus is particularly on residential construction, which is to be made more attractive through improved tax depreciation options.
Declining depreciation on wear and tear (AfA) for residential buildings
One of the key changes concerns the introduction of declining depreciation on wear and tear (AfA) for residential buildings. The aim is to amortize investments more quickly and increase the profitability of real estate projects. Investors can claim 5% of the investment costs for tax purposes in the first year and a further 5% of the residual value in the following years. In addition, there is the option of switching to straight-line depreciation, which offers flexibility.
Straight-line depreciation is a conservative depreciation method that is often used for assets whose value declines relatively evenly over time. In contrast, declining balance depreciation is more suitable for assets whose value declines more rapidly in the early years.
Declining depreciation applies exclusively to newly built or acquired residential buildings and apartments. Construction must begin between October 1, 2023, and September 30, 2029, with the date of commencement of construction as the decisive criterion. This regulation can be combined with the special depreciation allowance for new rental housing, which creates additional incentives.
An example illustrates the advantages: With investment costs of €500,000, this means a tax advantage of €10,500 in the first year at a personal tax rate of 42%. In comparison, investors would only achieve a tax advantage of €6,300 if the previous linear depreciation method were applied.
Combination with special depreciation allows for even greater profits
The combination of declining depreciation (AfA) and special depreciation (Sonder-AfA) offers additional prospects for profit. Thanks to extended application periods and increased construction cost limits, the law opens up further avenues for successful investment in real estate.
Now is the ideal time to invest in the real estate market, as the new law creates favorable conditions and promises attractive returns for savvy investors. Discover the lucrative opportunities and secure your place in the market!
Overview of linear depreciation
Linear depreciation is a method of calculating the depreciation of assets, including real estate, over their useful life. In contrast to declining balance depreciation, where the depreciation amounts decrease each year, the depreciation amounts remain constant with straight-line depreciation.
Here are the key features of straight-line depreciation:
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Constant depreciation rate: With straight-line depreciation, a fixed percentage of the acquisition or production costs is depreciated each year over the useful life of the asset.
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Equal depreciation amounts per year: Since the depreciation rate is constant, the depreciation amounts remain the same over the entire useful life.
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Simple calculation: Calculating straight-line depreciation is easy. Simply take the acquisition or production costs of the asset, divide them by the useful life, and you get the annual depreciation amount.
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Example: Suppose you have purchased a property for $500,000 and the useful life is 50 years. With a straight-line depreciation rate of 2%, you would claim 2% of $500,000, or $10,000, as the depreciation amount each year.
Overview of declining balance depreciation
- Applies exclusively to newly constructed or purchased residential buildings and apartments
- In the first year, 5% of the investment costs can be claimed for tax purposes, followed by 5% of the residual value in each of the following years
- Option to switch to linear depreciation at any time Construction must begin between October 1, 2023, and September 30, 2029
- The start of construction as indicated rather than the building application is the decisive criterion
- Can be combined with special depreciation for new rental housing
- Offers investors an attractive opportunity to refinance investments more quickly and maximize their tax advantages
Overview of special depreciation allowances
- Building applications submitted after August 31, 2018, and before January 1, 2022, OR
- After December 31, 2022, and before October 1, 2029 (previously January 1, 2027)
- New apartments must be created through these measures (Section 7b (2) sentence 1 no. 1 EStG)
- Acquisition or production costs up to €5,200 per square meter
- Living space assessment basis maximum €4,000 per square meter of living space
- Special depreciation of 5% per year for buildings with EH40 plus QNG sustainability seal over four years
- Combination with declining depreciation possible for new residential buildings
- Not applicable to the creation of living space in existing buildings or privately used residential property
Seize the opportunity now and take advantage of housing subsidies
We are happy to advise you on financing options and provide comprehensive support for your real estate project—regardless of whether you are a young family looking to buy your first home or an experienced investor. We place great importance on ensuring that you feel well supported at every stage of the real estate process and are able to make informed decisions.