Anyone who sells a rented property within the speculation period is often surprised by the tax bill: The tax office calculates a significantly higher profit than the difference between the purchase price and the sale price would suggest. The depreciation deductions (AfA) that you claimed year after year while renting out the property are responsible – they subsequently reduce your acquisition costs and thus increase the taxable capital gain on sale. We explain the mechanism, demonstrate it with an example, and show you how to avoid speculation tax.
Why the taxable profit is higher than the pure increase in value
Depreciation for wear and tear – AfA for short – is the tax depreciation of the building’s value. As long as you rent out the property, you may deduct this depreciation as income-related expenses from your rental income, thereby reducing your income tax year after year. However, this benefit has a downside as soon as you sell the property again within the ten-year speculation period.
In this case, the Income Tax Act requires a correction: Pursuant to § 23 para. 3 sentence 4 EStG, the acquisition or production costs are reduced “by depreciation for wear and tear, increased depreciation and special depreciation, insofar as they have been deducted in determining income...”. Put simply: Every euro of AfA that you used while renting out the property is deducted from your original acquisition costs when calculating the sale. This reduces the calculated cost basis – and the taxable profit increases by exactly this amount.
The legislature thereby prevents a double tax advantage: You should not be able to deduct the depreciation from rental income first and later claim the same amount a second time as a tax-free portion of the purchase price.
How the taxable profit is calculated
The capital gain pursuant to § 23 EStG is calculated as follows:
- Sale price (the achieved sale price)
- minus acquisition costs (purchase price plus ancillary purchase costs such as real estate transfer tax, notary and land registry fees)
- plus the total AfA claimed
- minus selling costs (for example, early repayment penalty, advertisements or a broker’s commission)
- = taxable capital gain
The decisive The post is the “plus depreciation allowance (AfA).” Without this addition, the profit would roughly correspond to the pure increase in value. It is the depreciation claimed that drives up the tax base.
Example calculation: How depreciation increases the speculation tax
An example illustrates the effect. Assume you bought a rented condominium in 2019 for 400,000 euros. Of this amount, 300,000 euros is attributable to the building and 100,000 euros to the land. Since only the building is depreciated, your straight-line depreciation is 2 percent of 300,000 euros, i.e. 6,000 euros per year. For the sake of simplicity, we will disregard the ancillary purchase costs here.
After six years, you sell the apartment in 2025 for 460,000 euros. During this period, you have depreciated around 36,000 euros (six years at 6,000 euros each).
- Pure increase in value: 460,000 euros − 400,000 euros = 60,000 euros
- Taxable profit: 460,000 euros − (400,000 euros − 36,000 euros) = 96,000 euros
Although the apartment has “only” increased in value by 60,000 euros, you pay tax on 96,000 euros. The difference of 36,000 euros corresponds exactly to the depreciation you previously claimed. This profit is taxed at your personal income tax rate—not at the flat withholding tax rate of 25 percent, which many mistakenly expect. With a high tax rate, this can quickly amount to more than 40 percent tax on the 96,000 euros.
Which depreciation deductions increase the profit
It is not only normal straight-line depreciation that counts. § 23 EStG covers all forms of building depreciation that you have deducted for tax purposes:
- Straight-line depreciation under § 7 para. 4 EStG: depending on the year of construction, 2 percent (completion from 1925 to 2022), 2.5 percent (completion before 1925), or 3 percent (completion from 2023 onward).
- Declining-balance depreciation under § 7 para. 5a EStG: 5 percent of the respective residual value for residential buildings whose construction began from October 2023 through September 2029.
- Special depreciation deductions for the construction of new rental housing under § 7b EStG: up to 5 percent annually for four years in addition to regular depreciation.
- Increased deductions, for example for listed buildings or buildings in redevelopment areas.
Declining-balance depreciation and special depreciation deductions have a particularly strong impact here: Anyone who depreciates high amounts in the early years and then sells early must add a correspondingly high amount back to the profit. There is no depreciation deduction for land, however—land wears down is not deducted and is therefore not depreciated for tax purposes either.
The Ten-Year Period and the Owner-Occupancy Exception
The entire mechanism only applies if you sell within the speculation period. According to § 23 para. 1 no. 1 EStG, this period is ten years and runs precisely from the date of the notarized purchase agreement to the notarized sale. If you sell only after these ten years have elapsed, the entire gain is tax-free for private individuals—and the AfA claimed remains a permanent tax benefit that you never have to repay.
A second exception is owner-occupancy. The sale also remains tax-free if you have occupied the property exclusively yourself or have used it for your own residential purposes in the year of sale and the two preceding years. In practice, a continuous period of slightly more than one year spanning three calendar years is sufficient. However, you may not claim AfA for the period of owner-occupancy—the question of adding it back therefore only arises for earlier rental years.
Incidentally: If your total gain from private disposal transactions in a year remains below the exemption limit of 1,000 euros (since 2024, previously 600 euros), no tax is due. If the limit is exceeded, however, the full amount is taxable from the first euro.
FAQ on AfA and Speculation Tax
Do I have to repay the AfA claimed to the tax office?
No, there is no direct repayment. The AfA claimed is merely added arithmetically to your capital gain and thus increases the tax base for speculation tax. If you sell only after the ten-year speculation period has elapsed, the depreciation remains fully intact and is never subsequently taxed.
Does depreciation on the land also count?
No. Only depreciation on the building portion is added back. Land and soil do not wear out and are not depreciated for tax purposes. That is why allocating the purchase price between the building and land values is so important for the calculation.
What happens after the ten years have elapsed?
The sale is then completely tax-free for private individuals. Neither the increase in value nor the AfA previously claimed is taxed. Completing the ten-year holding period is therefore the most effective way to retain the tax benefit of depreciation permanently.
Do increases also degressive depreciation and special depreciation the profit?
Yes, and particularly significantly. Since high amounts are already depreciated in the first years under degressive depreciation pursuant to Section 7(5a) of the German Income Tax Act (EStG) and special depreciation pursuant to Section 7b EStG, the amount added back in the event of an early sale is correspondingly large. Anyone using these depreciation methods should calculate a sale within the speculation period particularly carefully.
How high is the speculation tax on the increased profit?
There is no fixed tax rate. The capital gain is added to your other taxable income and taxed at your personal income tax rate – up to 45 percent plus the solidarity surcharge and, where applicable, church tax. The higher your other income in the year of sale, the higher the tax on the profit.
Advantages and disadvantages of depreciation from the seller’s perspective
Depreciation is fundamentally an advantage – but its effect depends on the timing of the sale:
- Advantage – ongoing tax savings: During the rental period, depreciation reduces your tax burden on rental income year after year.
- Advantage – lasting effect after ten years: If you sell only after the period has expired, the entire tax benefit remains intact.
- Advantage – liquidity: The tax saved is available to you as additional capital throughout the holding period.
- Disadvantage – higher profit on an early sale: Within the speculation period, the depreciation claimed increases the taxable profit euro for euro.
- Disadvantage – progression effect: The added amount may push you into a higher tax bracket and thus create a disproportionate burden.
- Disadvantage – documentation requirements: You must properly document all depreciation claimed over all years.
Conclusion: Incorporate depreciation intelligently into your sales planning
Depreciation is not a gift, but a tax deferral: What you save during the rental period, the tax office recovers through the increased profit if you sell within the speculation period. The most important lever is therefore the timing. Anyone who waits out the ten-year period can sell tax-free and retain the depreciation claimed in full. If an earlier sale is unavoidable, you should calculate the taxable profit precisely in advance and seek tax advice for larger amounts. TraumImmo supports you in marketing your property – the taxDetailed planning is best handled by a tax advisor.