German tax rulings impact real estate depreciation and renovation credits

Recent legal and tax developments in Germany provide new insights into real estate depreciation and energy renovation tax credits.

Regarding building depreciation (AfA), property owners of older buildings may be able to optimize their tax burden by proving a shorter actual economic useful life through expert assessments. While tax authorities often apply a standard 50-year depreciation period (2 percent annually), Section 7 Paragraph 4 Sentence 2 of the EStG allows for deviations if a shorter period is substantiated. This approach has been supported by Federal Fiscal Court rulings.

In a separate ruling, the Münster Finance Court (FG Münster) addressed tax reductions for energy-efficient renovations under Section 35c EStG. The court ruled that individuals can only claim tax credits proportional to their co-ownership share, even if they personally bore the full costs of the measures or occupied a larger portion of the property. The court dismissed a claim where a co-owner sought a full credit based on the living area used rather than the legal ownership percentage.