In straight-line depreciation, the acquisition/production cost of an asset is distributed evenly over its expected useful life.1
Straight-line depreciation is used in the accounting measurement of the asset. The amounts that stay constant are claimed as expenses for tax purposes, which reduces the taxpayer’s tax liability. Straight-line depreciation must be recognised in accordance with section 7 of the Einkommensteuergesetz (EStG – German Income Tax Act).The basis of assessment for depreciation is the actual acquisition or production cost. If there are no such costs or these are not known, the fair value, the net present value or assessment basis of the legal predecessor is used for properties. The net present value is a notional value that a potential buyer of the property would assume.2
Depreciation for properties relates solely to the building. By contrast, the land does not depreciate and therefore is not written down.3
The term “building” is based on the principles of income tax assessment law (R 7.1(5) EStR).
Owner-occupied residential properties are not normally depreciated.
The depreciation rates used have to distinguish between buildings that are business assets and those that are private assets.
Building that are held as business assets and that are not used for residential purposes and for which the planning application was made after 31 March 1985 are depreciated using an annual straight-line depreciation rate of 3% of acquisition or production cost (section 7(4) sentence 1 no. 1 EStG).
Annual depreciation on all other buildings is 2% if completed after 31 December 1924. Buildings completed before 1 January 1925 can be depreciated at 2.5% p.a. (section 7(4) sentence 1 no. 2 EStG). This applies both to buildings for residential purposes held as business assets and commercial buildings held as private assets.4
If the actual useful life is shorter than that prescribed by law, the actual useful life can be used on production of evidence.
From the start of the 2006 assessment period, straight-line depreciation is the only form of depreciation for buildings. Diminishing balance depreciation, which was formerly possible, is now only used for old cases.5
Straight-line depreciation can be graphically presented as follows:
Figure: Straight-line depreciation
Source: Own research based on Schulte, Karl-Werner; Pitschke, Christoph; Raethel, Jeanette (2008): Rechnungswesen, insbesondere Immobilien-Rechnungswesen. In: Schulte, Karl-Werner: Immobilienökonomie, Band I, 4. Aufl. München, S. 1027.