How Special Depreciation (Sonder-AfA) Affects New-Build Rental Flats
This guide refers to German law and the German tax system. It is a translation of our German original and does not replace individual tax or legal advice.
With the Growth Opportunities Act (Wachstumschancengesetz), an unparalleled opportunity for landlords and investors has emerged in times of rising prices and higher interest rates: the special depreciation for wear and tear (Sonder-AfA, Sonderabschreibung) – new-build depreciation of up to 40% in the first four years – has dominated conversations between investment advisers and investors since the law was passed. In this article, you will learn what you need to know about the Sonder-AfA and how you can benefit from Section 7b of the German Income Tax Act (EStG). We also show you which requirements apply to claiming the special depreciation.
Neo Capital supports high-earning employees and entrepreneurs with tax-optimised retirement provision. We advise our clients on ways to convert their tax burden into private wealth through tax-advantaged investments. Learn more about special depreciation, the depreciation of rental flats and tax-optimised provision: we advise you holistically and on the basis of your individual circumstances.
Special depreciation in the 2023 assessment period
For the construction of new rental flats, the temporary depreciation under §7 EStG was introduced, which, together with the conditions of the Growth Opportunities Act, provides a tax advantage for acquisition or production costs. Specifically, the special depreciation can be claimed if a building application was submitted after 31.08.2018 and before 01.01.2022, or after 31.12.2022 and before 01.10.2029. Construction costs of €5,200 per square metre of usable floor space may be taken into account, while the special depreciation is assessed on €4,000 per square metre (bear this in mind when calculating the depreciation of your property). When acquiring or constructing a new building, according to the German Federal Ministry of Finance (BMF) (in para. 50), the usable floor space of the entire building is to be used; for additional storeys, as well as for extensions, conversions, annexes or superstructures, the total newly created usable floor space applies.
The result of this measure is that five per cent of the acquisition or production costs can be claimed annually as special depreciation over six years. For the measures to take effect, a quality seal (Sustainable Building Quality Seal, QNG; Efficiency House 40) must be in place. For landlords, it also matters that existing properties are not covered by the special depreciation: one reason to focus on new builds with a high energy standard and low maintenance effort when buying new rental flats.
Depreciation of acquisition or production costs: opportunities for investors
Depreciation based on the Sonder-AfA enables investors to acquire more rental flats in less time on the basis of their tax refunds. The refund from one year's depreciation thus often already finances a large part of the equity needed to finance a further property. If you use the special depreciation in this way, you can accelerate your wealth building through real estate many times over. In our sample calculation, we show you what the investment can look like for investors, taking into account the construction cost ceiling.
When selecting suitable residential buildings, the date of the purchase contract is the decisive reference point. If it is after 30.09.2023 and the building qualifies under the criteria of the QNG and Efficiency House 40 standards, the special depreciation can be claimed. For construction, the start of building work is decisive: if the buyer does not bear any construction risk before 01.10.2023, the transfer of benefits and burdens in the case of a third-party developer can be proven by reviewing the documents. A careful review of your properties under construction is therefore advisable in any case.
The special depreciation of up to 5% per year can be claimed in the year of acquisition or completion of the flat and in the following three years (cf. Section 7b(1) sentence 1 EStG). Landlords may also choose to use the depreciation for only one, two or three years.
The special depreciation is an annual depreciation, so it does not have to be apportioned pro rata (by month), but applies to each year of the benefit period.
Neo Capital: advice and handling for tax-optimised acquisitions
As you can see, the Growth Opportunities Act from the Annual Tax Act 2024 (Jahressteuergesetz 2024) offers first-class advantages for investors. As independent investment advisers, we help you take advantage of §7b EStG and obtain higher refunds through declining-balance depreciation (degressive AfA) when buying rental flats. Since the choice of property is already decisive for claiming the Sonder-AfA, we accompany our clients from the very first second on the path to building wealth through the Sonder-AfA. Our portfolio of new builds includes numerous rental flats in top locations, which suggests ideal value growth and yields.
Are you interested in claiming the Sonder-AfA under §7 EStG and would like to learn more about your individual options? We support you with our network of tax advisers as well as our finance and real estate advisers. Together we plan your financial future and protect your assets while making use of attractive tax savings. On average, we reduce taxable income by six-figure sums within a few years. Contact us by phone, by email or via our website.