Renovating a Rental Property in Germany? One Threshold Decides Your Tax Bill.

Two investors buy the same Leipzig apartment. Both renovate. One spends 36,000 euros, the other 42,000.

The first deducts every cent in the year they pay it, worth around 15,000 euros in tax. The second deducts 840 euros, and then the same amount annually for the next fifty years.

Six thousand euros of extra spending cost the second investor roughly 15,000 euros of relief. They never saw it coming, because nobody mentioned the rule until the tax return was already being prepared.

The rule in sixty seconds

Renovation spending on a German rental property is treated one of two ways. As maintenance, it comes off your taxable income immediately. As an improvement to the building, it is written off through depreciation instead, usually at 2% a year.

German tax law (§ 6 Abs. 1 Nr. 1a EStG) adds a hard threshold on top. During the first three years after you take possession, renovation work must stay below 15% of what you paid for the building itself, excluding the land. Stay under, and you deduct it now. Go over, even by one euro, and the whole amount switches to the fifty-year route. Not the excess. All of it.

The Ministry of Finance rewrote its guidance on this in January 2026 and applied it retroactively to open tax years, so it reaches back to purchases made in 2023 and 2024, not only new ones.

Three ways foreign buyers lose the deduction

The budget was never tested against the building

An apartment needing 70,000 euros of work in a 260,000 euro building sits at 27%. Immediate deductibility was never available. Modelled before the offer goes in, that changes which property you buy, or how you phase the work.

The contract quietly shrank the allowance

The 15% is calculated on the building's share of the price, and that split sits in one line of the notarial contract. Moving it from 25% land to 35% erases roughly 5,000 euros of allowance on a 320,000 euro purchase, and reduces your annual depreciation for as long as you own the property.

The builder offered a package price

Doing everything at once is usually the cheapest quote and the fastest route across the threshold. Work carried out after year three faces no limit at all. Splitting a renovation often beats the discount for doing it in one go.

None of these are tax errors. They are property decisions with tax consequences, taken by buyers who had no way of knowing.

How LDP Group helps

We are property advisors, not tax advisors. The tax determination is made by the English-speaking Steuerberater we coordinate for you. What we manage is everything upstream of that, which is where the outcome is actually decided.

• Before you offer, we model your renovation plans against the specific property and tell you whether the numbers work, while you can still walk away.
• At the contract stage, we review the Kaufvertrag in English, including the price allocation, before you sign the one document you cannot revisit.
• Planning the work, we scope and sequence the renovation around the three-year window, and source quotes in the net figures that determine the threshold.
• On handover day, we record the building's condition in writing and photographs. That evidence cannot be created later, and it is what settles questions if they arise.
• Through to the finish, we track spending against your threshold across all three years and hand your Steuerberater an organised file instead of a shoebox.

The result is not a loophole. It is the same renovation, in a better order, with the paperwork to prove it.

Thinking about a property that needs work?

The window for getting this right opens when you start viewing and closes when the first invoice is paid. We can model your position before you commit, and tell you honestly if the plan does not stack up.

LDP Group advises international investors on German residential property, from selection and contract review through to letting and rental management. Get in touch at ldp.group.