How should renovation costs after purchasing a house be assessed?
What are renovation costs after purchasing a property?
After buying a house or flat, extensive renovations or modernisations are often carried out. These costs are usually immediately tax-deductible as maintenance expenses – provided the property is rented out.
The 15% limit – what you need to know
Note: If renovation costs exceed 15% of the building costs within the first three years after purchase, they are not considered immediately deductible advertising costs for tax purposes. Instead, they are added to the acquisition costs and may only be claimed through depreciation (AfA) at 2% per year (§ 6 Abs. 1 Nr. 1a EStG).
What counts towards the 15% limit – and what doesn't?
Not included in the 15% limit:
- Cosmetic repairs, such as painting and wallpapering (if carried out in isolation)
- Costs to bring the building into operational condition (directly part of the acquisition costs)
- Construction costs, such as extensions or major improvements to the building
Exception: Cosmetic repairs in connection with other measures
According to the Federal Fiscal Court (BFH), cosmetic repairs must be included if they are temporally, spatially and factually connected with other renovation measures. If this exceeds the 15% limit, these repairs also count as acquisition-related construction costs – and may only be depreciated (BFH ruling of 14.06.2016, IX R 22/15).
Practical tip
To avoid tax disadvantages:
- Ensure that total costs in the first 3 years remain below the 15% limit.
- Alternatively: Start major renovations only from the 4th year after purchase.
Protection of legitimate expectations for older cases
For property purchases before 01.01.2017, the tax authorities grant protection of legitimate expectations upon request. In this case, cosmetic repairs can still be excluded from the 15% limit (BMF letter of 20.10.2017, BStBl 2017 I p. 1447).
Example for illustration
Building acquisition costs (2018): 100.000 Euro
- Cosmetic repairs 2018: 5.000 Euro (fully deductible)
- Renovation costs 2019: 5.000 Euro
- Renovation costs 2020: 5.100 Euro
Total costs within 3 years: 15.100 Euro → 15% limit exceeded
Consequence: All costs are considered acquisition-related construction costs and may not be deducted immediately, but only depreciated over 50 years. Exception: For purchases before 2017, an application for protection of legitimate expectations can be made.
Damage after purchase: Immediately deductible
If damage was caused after purchase and by a third party, the repair costs do not count as acquisition-related construction costs but are immediately deductible (BFH ruling of 09.05.2017, IX R 6/16).
Special case: Tenant dies shortly after purchase
If a tenant dies shortly after purchase and extensive renovation is required, the expenses are not immediately deductible if the 15% limit is exceeded (FG Niedersachsen, ruling of 26.09.2017, 12 K 113/16).
Expenses before purchase do not count
The Federal Fiscal Court has ruled: Costs incurred before the legal transfer of ownership do not count towards the 15% limit (BFH decision of 28.04.2020, IX B 121/19).
Important: Net values instead of gross values
To check the 15% limit, net expenses (excluding VAT) must be used. Tax offices often incorrectly calculate with gross amounts – this can unjustly exceed the limit.
How should renovation costs after purchasing a house be assessed?
What are maintenance expenses?
Maintenance expenses include all costs for ongoing maintenance work or repairs, as well as any costs incurred from renewing or improving existing parts (e.g. windows) or systems (e.g. heating).
However, if new parts that did not previously exist are added (e.g. installation of a previously non-existent bathroom), this is not maintenance but capital expenditure, which only affects depreciation. Distinguishing between maintenance and capital expenditure can often be difficult.
If the measure costs up to 4,000 Euro excluding VAT, you can always deduct the expenses as maintenance, even if they are actually capital expenditure. However, special conditions apply during the first three years after purchasing a building.
Larger maintenance expenses can be deducted immediately as business expenses or spread over 2 to 5 years.
What are maintenance expenses?
