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New build rental apartments – Special depreciation allowance of 5% per year will be re-introduced

To encourage the new construction of rental apartments, in 2019 already, German lawmakers introduced a special depreciation allowance of up to 5% per year that could be claimed for the first four years starting in the year of completion and in addition to scheduled depreciation. However, this concession could only be claimed if, during the period 2019 to 2021, an application for a building permit had been filed or a notice of intended building works had been placed. As of the beginning of 2022, it was thus no longer possible to claim a special depreciation allowance for new build projects.

However, in the 2022 German Annual Tax Act, lawmakers re-introduced the special depreciation allowance in a modified form and linked it to compliance with specific building efficiency requirements. The new rules for the concession apply to construction projects for which the application for a building permit was filed in 2023 to 2026, or a notice of intended building works was placed during this period. As under the previous provisions, in the first four years a special depreciation allowance of 5% per year can be deducted in addition to scheduled depreciation. To claim this concession, the newly constructed apartment has to be in a building that fulfils the criteria of the so-called Efficiency House 40 standard with sustainability class/building efficiency level 40; proof of this has to be provided in the form of the Qualitätssiegel Nachhaltiges Gebäude (QNG) [German sustainable building certification].

Moreover, the acquisition and construction costs may not exceed €4,800 per sq m of living area. Under the previous rules, this upper limit for construction costs was €3,000. The assessment basis used to calculate the special depreciation may not exceed an amount of €2,500 per sq m of living area (previously €2,000).

Please note: The upper limit for construction costs of €4,800 should not be confused with the maximum limit for the concession of €2,500 because the former figure determines whether or not the concession applies while the latter figure is merely a cap on the amount of the depreciation.

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