Tax incentives for new rental housing construction

Subsidies, special depreciation of new rental housing construction

The Bundesrat (upper house of the German parliament) has approved the “Act on Tax Incentives for the Construction of New Rental Housing”. Accordingly, for the acquisition or construction of new rental housing in an EU member state, special depreciation of up to 5% per yearcan be claimed in the year of acquisition or construction and in the following 3 years in addition to the “normal” building depreciation of 2% (new Section 7b EStG). Beneficiaries are both the creation of new rental housing in connection with the construction of new buildings and corresponding construction measures in existing buildings. The purchase of a new home is only eligible if it is completed by the end of the year of completion.

Special depreciation allowances are eligible under the following conditions:

• The building application (or building notice) to create new, previously unavailable housing must be submitted after August 31, 2018 and before January 1, 2022.
• The acquisition or production costs may not exceed 3,000 euros per m2 of living space.
• The new dwelling must be let for residential purposes against payment in the year of acquisition or construction and in the following 9 years; the temporary accommodation of persons, e.g. letting as a vacation home, does not meet this requirement.

Limitation of the assessment allowance

The assessment basis for the special depreciation allowances is limited to 2,000 euros per m2 of living space. Companies only receive the tax benefits to the extent that certain EU state aid requirements are met (cf. Section 7b (5) EStG n.F.).

The special depreciation allowances can be claimed for the last time for the 2026 assessment period or for the fiscal year ending before January 1, 2027; this also applies if the 4-year depreciation period has not yet expired (Sec. 52 (15a) EStG n. F.).

The special depreciation allowances are undo made, if the (beneficiary) dwelling in the year of acquisition/construction and in the following 9 years not the transfer against payment to Residential serves or is disposed of (tax-free) or if the Construction cost ceiling of 3,000 euros per m2 of living space is exceeded within the 4-year depreciation period by subsequent acquisition or production costs.