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Election option for depreciation of land
From 2026, rental of land will include election rights regarding the basis for depreciation, which can also affect disposals in the long term.
The starting point was the previous legal situation, according to which, on the gratuitous transfer of a rented property, the predecessor's depreciation had to be continued. If a land parcel that had not been taxed by 31 March 2012 (= "old assets") was used for the first time to generate rental and leasing income, the fictitious acquisition costs had previously to be applied as the basis for depreciation (AfA).
In practice it was sometimes difficult to prove whether a property had previously been let and, if so, what the depreciation basis of the predecessor had been. For this reason, administrative practice had so far allowed a simplification, whereby on the gratuitous transfer of a building (the old assets) the fictitious acquisition costs could be applied if the building, despite earlier rental by the predecessor, had not been let for a period of more than ten years.
2026 enshrined in law in a modified form
Since 2026 this simplification has been enshrined in law in a slightly modified form: the use of fictitious acquisition costs is now also permissible if a gratuitously acquired building was last used by the predecessor to generate income before 1 January 2013. Furthermore, on first rental a right of election arises, whereby the actual acquisition costs may be applied instead of the fictitious ones, provided they are known and can be demonstrated on request.
The use of fictitious acquisition costs usually leads to a higher depreciation, which can be advantageous for tax purposes during the rental period. However, the following effects must be taken into account in the event of a possible disposal of the land.
Impact on the disposal profit
On a later disposal of the property, the use of fictitious acquisition costs results in a split approach that divides the land for tax purposes into two phases, namely "old assets" and "new assets": the value changes up to the start of the rental are attributed to the old assets, with the fictitious acquisition costs being taken as the disposal proceeds. Value changes from the start of the rental count towards the new assets, with the fictitious acquisition costs replacing the actual acquisition costs.
When calculating the real estate earnings tax (ImmoESt), the acquisition costs for the "old assets" portion are set flat at 86% of the fictitious acquisition costs, resulting in an effective tax burden of 4.2% of the fictitious acquisition costs. For the "new assets" portion, the difference between the sale proceeds less the fictitious acquisition costs and the claimed depreciation amounts is taxed at 30%. The tax burden therefore depends primarily on the length of the rental period.
If the fictitious acquisition costs are not used, the acquisition costs for determining the income from the disposal are set flat at 86% of the sale proceeds, resulting in an effective tax burden of 4.2% of the disposal proceeds.
Exercising the right of election therefore requires a carefully weighed decision. It is particularly important whether and when a later disposal of the property is planned. In the case of an intended rental, it is advisable to discuss the matter with us early in order to ensure a tax‑optimal approach.
In practice it was sometimes difficult to prove whether a property had previously been let and, if so, what the depreciation basis of the predecessor had been. For this reason, administrative practice had so far allowed a simplification, whereby on the gratuitous transfer of a building (the old assets) the fictitious acquisition costs could be applied if the building, despite earlier rental by the predecessor, had not been let for a period of more than ten years.
2026 enshrined in law in a modified form
Since 2026 this simplification has been enshrined in law in a slightly modified form: the use of fictitious acquisition costs is now also permissible if a gratuitously acquired building was last used by the predecessor to generate income before 1 January 2013. Furthermore, on first rental a right of election arises, whereby the actual acquisition costs may be applied instead of the fictitious ones, provided they are known and can be demonstrated on request.
The use of fictitious acquisition costs usually leads to a higher depreciation, which can be advantageous for tax purposes during the rental period. However, the following effects must be taken into account in the event of a possible disposal of the land.
Impact on the disposal profit
On a later disposal of the property, the use of fictitious acquisition costs results in a split approach that divides the land for tax purposes into two phases, namely "old assets" and "new assets": the value changes up to the start of the rental are attributed to the old assets, with the fictitious acquisition costs being taken as the disposal proceeds. Value changes from the start of the rental count towards the new assets, with the fictitious acquisition costs replacing the actual acquisition costs.
When calculating the real estate earnings tax (ImmoESt), the acquisition costs for the "old assets" portion are set flat at 86% of the fictitious acquisition costs, resulting in an effective tax burden of 4.2% of the fictitious acquisition costs. For the "new assets" portion, the difference between the sale proceeds less the fictitious acquisition costs and the claimed depreciation amounts is taxed at 30%. The tax burden therefore depends primarily on the length of the rental period.
If the fictitious acquisition costs are not used, the acquisition costs for determining the income from the disposal are set flat at 86% of the sale proceeds, resulting in an effective tax burden of 4.2% of the disposal proceeds.
Exercising the right of election therefore requires a carefully weighed decision. It is particularly important whether and when a later disposal of the property is planned. In the case of an intended rental, it is advisable to discuss the matter with us early in order to ensure a tax‑optimal approach.