The 15 % test — Anschaffungsnaher Herstellungsaufwand explained

1. The 15 % rule defined

The German tax code prevents property buyers from acquiring run-down buildings, renovating them extensively, and deducting the massive costs immediately against their income. This restriction lives in § 6 Abs. 1 Nr. 1a EStG. It defines the concept of Anschaffungsnaher Herstellungsaufwand (acquisition-related manufacturing costs). The rule is strict and mathematical. If you spend more than 15 % of the building's initial purchase price on repairs and modernization within the first three years of ownership, you lose the right to write off those costs immediately. The Finanzamt (tax office) reclassifies these expenses. Instead of treating them as regular Werbungskosten (deductible expenses linked to rental income), they add the sum to your original purchase price. You must then recover the cost through AfA (Absetzung für Abnutzung — depreciation) over the building's useful life. For most properties, § 7 Abs. 4 EStG dictates an AfA rate of 2.0 % over 50 years. For residential new-builds completed from 2023 onward, the rate is 3.0 % over 33 years. Waiting 50 years to realize a tax benefit destroys the cash flow of a renovation project. Understanding this threshold is mandatory for any non-resident landlord planning updates to a newly acquired German property.

2. Calculating your building baseline

The 15 % limit applies strictly to the Gebäudeanteil (building value), never to the total purchase price. You cannot depreciate land, and you cannot use land value to inflate your renovation allowance. Before you sign a single contractor invoice, you must split your purchase price into Grund-und-Boden (land value) and Gebäudeanteil. You find the land value using the Bodenrichtwert (standard land value) for your specific address via the regional BORIS-D portal. You multiply this per-square-meter value by your plot size. The remaining portion of your purchase price, plus incidental acquisition costs like notary fees and property transfer tax, forms your Gebäudeanteil. Assume you buy an apartment for 400 000 €. You calculate the Grund-und-Boden at 100 000 €. Your Gebäudeanteil is 300 000 €. Your 15 % threshold is exactly 45 000 €. This 300 000 € figure also forms your baseline for the annual AfA deduction in your Einkommensteuererklärung (income tax return). If you overstate the building value to get a higher 15 % limit, the Finanzamt will correct your calculation during their review, potentially pushing your completed renovations over the legal threshold retroactively.

3. What counts toward the 15 % limit

The Finanzamt groups almost every repair and modernization invoice from your first 36 months of ownership into this test. This includes replacing the heating system, installing new windows, upgrading the electrical grid, and renovating bathrooms. The trap catches many landlords on Schönheitsreparaturen (cosmetic repairs). Normally, painting walls, replacing carpets, or sanding floors count as immediate Werbungskosten. However, if you execute cosmetic repairs within the three-year window alongside functional upgrades, § 6 Abs. 1 Nr. 1a EStG forces you to bundle them. The tax office adds the painting invoices to the window-replacement invoices. If the combined total breaches the 15 % threshold, every single euro becomes Anschaffungsnaher Herstellungsaufwand. You must track all material costs, contractor labor, and disposal fees. Even minor fixes between tenants count toward the aggregate total. The only condition is that the expense restores or improves the existing condition of the property. For owners in a WEG (Wohnungseigentümergemeinschaft — homeowners' association), special assessments (Sonderumlagen) levied for major building repairs during this window also count toward your personal 15 % limit, proportional to your ownership share.

4. Exclusions from the threshold

Certain expenses bypass the 15 % test entirely. The first category is Erweiterungen (expansions). If you add usable square footage—such as building a conservatory, adding a balcony, or converting an empty attic into a habitable apartment—these costs do not consume your 15 % allowance. Expansions always qualify as Herstellungsaufwand (manufacturing costs) and are capitalized directly. The second category covers annual routine maintenance. Your standard Hausgeld (HOA fee) payments for administration, elevator maintenance contracts, and mandatory heating inspections remain immediate Werbungskosten. The third and most contested category is subsequent damage. If a verifiable event damages the property after the transfer of ownership, fixing it does not count toward the 15 % limit. If a storm destroys the roof in year two, the repair is fully deductible immediately. However, fixing hidden defects that existed before you bought the property does count toward the 15 %. The Finanzamt demands strict proof for subsequent damage. You typically need dated photographs, insurance reports, and weather data to prove the damage occurred after you took economic ownership.

5. The net versus gross calculation trap

The 15 % limit applies exclusively to the net costs of your renovations, excluding the Umsatzsteuer (Value Added Tax). Private landlords often look at the final gross number on a contractor's invoice and prematurely panic. If your building value is 200 000 €, your 15 % limit is exactly 30 000 € net. A contractor hands you a bill for 35 000 €. You might assume you breached the threshold. But if that 35 000 € includes 19 % VAT, the net cost is only 29 411 €. You are still under the limit. You deduct the full 35 000 € (the gross amount) as Werbungskosten in your tax return for that year. The distinction is critical: you test the threshold using the net amounts, but you deduct the gross amounts against your Mieteinnahmen (rental income). Non-resident landlords must track both figures meticulously. If you use the gross figures to pace your renovation schedule, you artificially restrict your own tax-free modernization budget by 19 %.

6. Worked example 1 — Staying under the limit

You buy a property with a Gebäudeanteil of 200 000 €. Your 15 % limit is 30 000 € net. In year one, you replace the floors and paint the walls for 10 000 € net (11 900 € gross). In year two, you renovate the bathroom for 18 000 € net (21 420 € gross). In year three, you spend nothing. Your total net expenditure is 28 000 €. You successfully stayed under the 30 000 € threshold. Because you passed the test, you declare the 11 900 € gross in year one and the 21 420 € gross in year two as immediate Werbungskosten on your Anlage V. These deductions directly offset your Mieteinnahmen. Non-residents face a flat taxation baseline because the Grundfreibetrag (tax-free allowance, 11 784 € in 2025) does not apply to limited tax liability (§ 49 Abs. 1 Nr. 6 EStG). Every euro of profit is taxed at your progressive rate, starting at 14 %. If your rental profit pushes you into the 42 % bracket, deducting 33 320 € gross over two years saves you roughly 14 000 € in Einkommensteuer, plus the 5.5 % Solidaritätszuschlag. You retain this cash immediately.

7. Worked example 2 — Breaching the limit

Using the same 200 000 € building value and 30 000 € net limit, you decide to add new windows in year three. The window invoice is 3 000 € net (3 570 € gross). Your total net expenditure across the three years hits 31 000 €. You breached the 15 % test by 1 000 €. The Finanzamt applies § 6 Abs. 1 Nr. 1a EStG retroactively. The entire 31 000 € net (plus VAT, totaling 36 890 € gross) transforms into Anschaffungsnaher Herstellungsaufwand. You lose the immediate Werbungskosten deductions you claimed in years one and two. The tax office will issue amended tax assessments, demanding back taxes plus statutory interest under § 233a AO (the rate dropped from 6 % p.a. to 1.8 % p.a. effective 2019 forward following the 2022 reform). Instead of a 36 890 € immediate deduction, you add this amount to your 200 000 € building value in your Anlagenverzeichnis (depreciation schedule). Your AfA base becomes 236 890 €. At a 2.0 % AfA rate, you deduct an extra 737 € per year for the next 50 years. You traded an immediate 14 000 € tax shield for a 737 € annual deduction. This mathematical cliff makes tracking your three-year net total the single most important task for a new landlord.

8. Timing your renovations across tax years

The three-year window does not align with calendar years. It begins on the exact day of the Übergang von Nutzen und Lasten (transfer of economic ownership). This date is specified in your purchase contract, typically when the purchase price hits the seller's account, not the day you sign at the notary. If economic ownership transfers on 15 August 2024, the danger zone closes on 14 August 2027. Any invoice dated 15 August 2027 or later falls outside the 15 % test. Smart landlords sequence their renovations to exploit this timeline. They execute critical repairs in the first 36 months, keeping the net total safely below 14 %. They delay major cosmetic overhauls or non-urgent functional upgrades until month 37. Once the window closes, you can spend 50 % of the building value on maintenance in year four, and it all counts as immediate Werbungskosten. Structuring your cash flow requires discipline.

• Months 1 to 12 | 12 000 € net | Urgent heating repair (Counts toward 15 % test)
• Months 13 to 24 | 8 000 € net | Urgent roof patching (Counts toward 15 % test)
• Months 25 to 36 | 0 € net | Halt all non-emergency spending to stay under limit
• Month 37 onward | 45 000 € net | Full cosmetic overhaul (Immediate Werbungskosten)

9. Filing correctly on Anlage V

When you file your Einkommensteuererklärung, you declare your Kaltmiete (cold rent) and Nebenkosten (utility costs) as income. You must place your renovation costs in the correct Zeile (line) of the Anlage V form. If you are safely under the 15 % limit, you declare these costs as Erhaltungsaufwendungen (maintenance expenses) in Zeilen 55–56 (fully deducted this year) or in Zeilen 57–60 if you elect to spread large repairs over 2–5 years under §§ 11a, 11b EStG. If you breach the 15 % limit, you do not enter the costs under maintenance. Instead, you update your Anlagenverzeichnis. You add the gross renovation costs to your original Gebäudeanteil and calculate the new 2.0 % or 3.0 % AfA figure. You then enter this updated depreciation amount in Zeile 33 of Anlage V. Navigating the ELSTER portal with a digital ELSTER-Zertifikat requires precise inputs to avoid triggering automated audits. If you want to skip manual ELSTER forms, Anlage V Easy prepares your German rental tax report from abroad in 10 minutes for €79, automatically applying the correct AfA rules to your capitalized costs.

10. Defending against tax office audits

Finanzamt Neubrandenburg handles thousands of non-resident tax files and scrutinizes high maintenance claims in the first three years. They frequently send letters demanding itemized invoices and proof of payment. If you claim a major expense as subsequent damage (like a burst pipe) to exclude it from the 15 % test, they will challenge it. If the Finanzamt reclassifies your deductions and issues a negative assessment, you have exactly one month to file an Einspruch (appeal). Your Einspruch must include evidence. Keep a detailed photo log of the property on the day of handover. Maintain separate folders for cosmetic upgrades, expansions, and emergency repairs. If you sell the property within ten years, any capitalized Anschaffungsnaher Herstellungsaufwand increases your acquisition cost, which reduces your taxable profit for Spekulationssteuer (capital gains tax). Careful documentation protects your immediate cash flow today and your capital gains position tomorrow.