Depreciation of buildings after a shorter useful life

The Federal Ministry of Finance has stipulated under which conditions and with which evidence a shorter depreciation period for buildings than the statutory period is possible.

In 2021, the Federal Fiscal Court ruled that property owners who claim a shorter actual useful life of the building for depreciation purposes can use any method of presentation, provided that conclusions can be drawn about the relevant factors for the actual remaining useful life. Originally, the tax authorities therefore wanted to exclude a shorter depreciation period for new acquisitions from this year onwards by amending the law.

However, the legislator ultimately decided against this categorical exclusion and instead relied on the fact that the increase in depreciation rates for new residential buildings will already lead to a significant reduction in the number of such cases. For the remaining cases, the Federal Ministry of Finance has now issued guidelines on the circumstances under which a shorter useful life can be considered and how the evidence is to be provided.

• General depreciation rates: The standardized depreciation rate applicable to a building is to be applied irrespective of the actual useful life of the building and also irrespective of the actual age of the building. It therefore also applies to the depreciation of an acquired existing property. The depreciation periods for the individual depreciation rates are not synonymous with the total useful life within the meaning of the Valuation Act. As a rule, the actual useful life of a building is longer than the depreciation period.

• Shorter service life: If the actual useful life of a building is shorter than the useful life resulting from the application of the depreciation rate, the depreciation corresponding to the actual useful life can also be applied in justified exceptional cases. The useful life is the period during which a building can be expected to be used for its intended purpose. Whether a shorter actual useful life can be used as a basis depends on the circumstances of the individual case.

• Justifications: The assessment of building depreciation according to the shorter actual useful life requires a specific justification based on the objective circumstances. The decisive factor is whether the building is technically or economically used up before the end of the regular depreciation period from an objective point of view. The determination of the shorter actual useful life must be based on an estimate based on the greatest possible probability. All technical and economic circumstances of the building in question to be presented by the owner are taken into account.

  

• Duty to cooperate: When substantiating the shorter actual useful life, the owners are obliged to cooperate to a greater extent because the factors to be taken into account in the estimate are within the owner's sphere of influence and knowledge.

• Relevant criteria: The shorter useful life to be estimated is determined by certain influencing factors. These include technical wear and tear, economic depreciation and legal circumstances that may limit the useful life of an item.

• Technical wear and tear: The starting point for the assessment of technical wear and tear is the useful life of the supporting structure of the building (roof structure, load-bearing walls, floor slabs and foundations) as the main component of the building. It is not sufficient for the assumption of a shorter technical service life that only individual parts of the building are due for renewal. This also does not apply if the expenditure leads to a significant improvement of the building and is to be allocated to the production costs for tax purposes. Instead, it is necessary that the building as a whole is impaired by technical wear and tear of the load-bearing parts.

• Economic devaluation: A shorter actual useful life based on economic depreciation can only be used as the basis for depreciation if the building is objectively economically used up before the end of its technical useful life, i.e. if the possibility of economically viable alternative use or utilization has definitively ceased.

• Intention to demolish: The intention to demolish or sell a building that is still in use does not in itself justify a shorter useful life for the building. A reduction in the useful life can only be considered if the preparations for demolition have progressed to such an extent that further use in the previous or another manner is virtually impossible. The depreciation corresponding to the actual useful life can only be applied once the date of the end of use of the building has been determined.

• Company building: A shorter useful life can be assumed for certain buildings used for business purposes without there being a separate obligation to provide evidence of this. For example, the official depreciation table may result in a shorter useful life for halls of lightweight construction, stables and sheds, depending on their construction and use. Only those who claim a useful life that deviates from the depreciation tables must provide substantiated reasons.

• Model and prefabricated houses: Model homes are also generally depreciated in accordance with the regular legal requirements. For a shorter actual useful life, the period of probable subsequent use as a residential building after leaving the business must also be included. This also applies to prefabricated houses built on third-party land that have to be dismantled for the purpose of sale and rebuilt elsewhere.

• Detection methods: Proof of a shorter actual useful life must be provided by submitting an expert opinion from a publicly appointed and sworn expert for the valuation of real estate or a certified expert or appraiser for the valuation of real estate. As part of the proof, the condition of the building (load-bearing structure of the building) must be presented and reasons must be given as to why it is unlikely that any economically viable subsequent use will be possible at the end of the claimed useful life and why there is no residual value. A building fabric appraisal is not mandatory, but can provide helpful clues for assessing the individual case. The mere adoption of the remaining useful life from a market value report is not suitable as evidence. The purpose of the expert opinion must be expressly aimed at proving a shorter actual useful life and must take into account the relevant factors for this. Possible subsequent use of the building and its effect on the useful life must also be taken into account.