Building Depreciation - Shorter Actual Useful Life

In principle, fixed percentages apply for the depreciation of buildings used to generate income, which amount to 2 %, 2.5 % or 3 % depending on the type of use and the time of completion or submission of the building application (assumed useful life of the substance, i.e. 50, 40 or 33 1/3 years).

If the actual useful life of the building is shorter in comparison - as is possible, for example, in the case of an acquired existing property - the building depreciation corresponding to the actual useful life can be applied instead, section 7 para. 4 sentence 2 of the German Income Tax Act.

According to the ruling of the German Federal Fiscal Court of July 28, 2021, case no. IX R 25/19, taxpayers can use any suitable method of presentation for this purpose, provided that it allows conclusions to be drawn about the relevant determinants - technical deterioration, economic depreciation, legal restrictions on use. In tax office practice, this case law has led to a significant increase in applications from taxpayers for the recognition of a shorter actual useful life. In its circular dated February 22, 2023, the German Federal Ministry of Finance therefore positions itself and presents its principles of application in this regard.

It must then first be clarified whether the building is technically or economically used up before the end of the depreciation period resulting from the typical fixed percentages. If this is the case, the shorter actual useful life - also taking into account uncertain future events - must be determined with the greatest possible probability. However, it remains unclear which specific events could be involved here; force majeure such as fire damage or flooding are likely to be ruled out from the outset due to a lack of predictability.

In all other cases, the technical useful life, i.e. the period in which the building is subject to material deterioration, must be assumed. To assume a shorter technical useful life, it is not sufficient that only individual dependent parts of the building are due for renewal or replacement. Rather, it is necessary for the building as a whole to be impaired in its usability, in particular due to technical deterioration of the load-bearing parts (roof structure, load-bearing interior and exterior walls, ceilings and foundations). In addition, an intention to demolish or sell is not sufficient to assume a shorter useful life of the building. This can only be assumed if it is ruled out that the building can be used as before, for example because there is a specific obligation to demolish it.

The proof of a shorter actual useful life must be provided by submitting an expert opinion from a publicly appointed and sworn building expert or an officially certified expert. The purpose of the expert opinion must expressly refer to the proof of a shorter actual useful life. In this context, the condition of the building in its elements determining the useful life must be presented and reasons must be given as to why no economically viable (other) subsequent use is likely to be possible at the end of the claimed (shorter) useful life and no residual value is available. Furthermore, the expert opinion must contain statements on the technical, economic and legal influencing factors (= relevant determinants).

In the opinion of the tax authorities, it is not appropriate to adopt the remaining useful life of a building from a market value appraisal on the basis of the so-called ImmoWertV for building law purposes for tax law purposes as well.