Allocation of the Purchase Price for Real Estate
Jul 21, 2026
The tax-related allocation of the purchase price is one of the key planning considerations when acquiring rental properties. The total purchase price is allocated between the value of the building and the value of the land. This distinction is of considerable tax significance, since, under the provisions of the Income Tax Act, only the portion of the purchase price attributable to the building can generally be taken into account through depreciation deductions (AfA), while the land is not subject to depreciation.
An appropriate allocation of the purchase price can therefore significantly influence the amount of annual depreciation. However, this is contingent on the chosen allocation reflecting the actual value ratios and withstanding scrutiny by the tax authorities.
In practice, disputes frequently arise regarding the proportion attributable to the building. The so-called residual value method, which was sometimes used in the past—where the land value was first determined based on standard land values and the remaining purchase price was allocated to the building—generally does not meet tax requirements according to current Supreme Court case law.
Instead, the total purchase price must generally be allocated based on the ratio of the market values of the building and the land. If a transparent and realistic allocation of the purchase price is already agreed upon in the notarized purchase agreement, this can serve as an important basis for tax assessment. However, this allocation is binding on the tax authorities only to the extent that the agreement is not abusive and accurately reflects the actual value ratios.
Various recognized methods are available for a proper and legally sound allocation of the purchase price between the building and the land:
1. Federal Ministry of Finance (BMF) Tool
The Federal Ministry of Finance provides an Excel tool that enables a standardized calculation of the building and land value shares. It is also used by the tax authorities as a guideline and can serve to verify the plausibility of the figures with the tax office.
2. Online Calculators
Online calculators can provide an initial rough estimate. However, they do not replace a case-by-case tax review and, on their own, generally do not have binding effect on the tax authorities.
1. Federal Ministry of Finance (BMF) Tool
The Federal Ministry of Finance provides an Excel tool that enables a standardized calculation of the building and land value shares. It is also used by the tax authorities as a guideline and can serve to verify the plausibility of the figures with the tax office.
2. Online Calculators
Online calculators can provide an initial rough estimate. However, they do not replace a case-by-case tax review and, on their own, generally do not have binding effect on the tax authorities.
3. Market Value or Remaining Useful Life Appraisals
In cases involving special property characteristics or deviations from standard methods, a qualified market value appraisal or an appraisal of the remaining useful life may be appropriate. Such appraisals can support a different valuation on a case-by-case basis, provided they meet the technical and legal requirements.
The allocation of the purchase price is therefore not merely a mathematical exercise, but an essential component of tax planning when acquiring real estate. It directly influences depreciation and, consequently, the ongoing tax burden.
Seeking tax advice early on and maintaining clear documentation of the underlying valuation ratios can help avoid future disputes with the tax authorities and ensure proper tax treatment.
Special attention should also be paid to distinguishing between fixtures and fittings that can be sold separately from the property and are therefore not subject to real estate transfer tax.
Even before the notarial certification, HCSM Tax Consulting can review whether the proposed allocation of the purchase price is plausible and tax-efficient. In complex cases, it may also be advisable to involve a qualified expert.
Note: This article is for general informational purposes only and does not constitute individual tax advice.