BMF – Differentiation between maintenance expenses, production costs and acquisition-related production costs
Mar 31, 2026
In a letter dated 26 January 2026, the Federal Ministry of Finance (BMF) completely revised the previous administrative guidelines from 2003 and 2017 concerning the tax treatment of repair and modernisation work on buildings. The new letter is to be applied to all pending cases and is therefore of practical relevance to ongoing assessment and audit procedures.
The very scope and structure of the letter indicate that the BMF intends to systematise the Federal Fiscal Court’s case law, which has hitherto been heavily focused on individual cases. The primary aim is not so much a substantive change to the legal position, but rather the standardisation and categorisation of the previous administrative interpretation.
1. Systematic Approach and Basic Principle
The starting point for the new regulations remains the familiar basic principle: expenditure on repair and modernisation measures is generally to be treated as immediately deductible maintenance costs, but may, under certain conditions, be allocated to acquisition or production costs and is then deductible only through depreciation.
The main new feature is the clear, step-by-step assessment structure. The Federal Ministry of Finance (BMF) now expressly distinguishes between:
Acquisition costs
Production costs
Production costs incurred in connection with acquisition
Maintenance expenses
Compared with previous administrative guidelines, the circular defines the tax classification much more clearly on the basis of standardised criteria and specific examples. Whilst this reduces the need for discretionary decisions on a case-by-case basis, it increases the predictability of the tax treatment.
2. Acquisition costs and operational readiness
With regard to acquisition costs, the Federal Ministry of Finance (BMF) has significantly clarified the concept of a building’s operational readiness. In future, a two-stage assessment must be carried out:
Objective functionality: The decisive factor is whether the building is technically fit for its intended purpose. If essential building components are missing or are unusable, the building is not ready for use; expenditure incurred to establish this usability for the first time then counts towards acquisition costs. Normal wear and tear or repairable damage caused by wear and tear, however, do not affect the building’s readiness for use.
Subjective functionality: In addition, the purchaser’s specific intended use must be taken into account. Consideration is given not only to the type of use (e.g. residential or commercial use), but also to the standard of the residential building sought by the purchaser. Expenditure necessary to achieve this standard for the first time may therefore qualify as acquisition costs.
In doing so, the Federal Ministry of Finance (BMF) is consistently continuing the case law of the Federal Fiscal Court (BFH), but is expanding the scope of acquisition costs, as the purchaser’s subjective expectations regarding quality are given greater prominence.
3. The new standard concept for residential buildings
At the heart of the letter is a new, binding standard concept for residential buildings. The Federal Ministry of Finance (BMF) distinguishes between three standard levels: very basic, medium and very high standard.
The standard of a residential building is determined exclusively on the basis of four features:
Heating system
Plumbing
Electrical installation
Windows
This list is exhaustive. Other measures – in particular energy-efficiency renovations – are expressly excluded from the standard determination. The BMF thus rejects the equation of energy-efficiency improvements with an increase in standard.
For the assessment of an increase in standard, the letter sets out a standardised interplay of the four key fitting features. In substance, this corresponds to the previous approach, but is now expressly standardised. The previously required overall assessment is replaced by a standardised rule – this creates legal certainty but reduces scope for atypical cases.
The numerous positive and negative examples, which further define the concept of a standard upgrade, are of great practical significance. In particular, with regard to heating installations, it is clarified that the mere change of energy source does not generally constitute a standard upgrade.
4. Construction costs and ‘original condition’
With regard to construction costs, the Federal Ministry of Finance (BMF) has clarified, in particular, the concept of a building’s original condition. As a general rule, the condition at the time of construction or purchase for consideration is decisive. In the case of acquisition without consideration, reference must now be made explicitly to the time of construction or the last purchase for consideration by the legal predecessor.
This prevents a continuously updated reference condition from forming in the event of multiple transfers without consideration. In practice, however, this may mean that conditions dating back a very long time must be described and documented.
Of particular practical relevance is the clarification of so-called ‘renovation in instalments’. A significant improvement may also be deemed to exist where individual measures, viewed in isolation, would not yet be subject to capitalisation, but form part of a unified refurbishment concept. Such a comprehensive measure is generally deemed to exist where the works are carried out within a period of three years. This temporal classification provides clarity, but carries the risk that measures originally treated as maintenance expenditure may be reclassified retrospectively.
5. Production costs incurred in connection with acquisition and retroactive effect
With regard to production costs incurred in connection with acquisition, the Federal Ministry of Finance (BMF) confirms the established 15% threshold but extends its scope of application. It is particularly worth noting that certain cosmetic repairs must now be explicitly included in the calculation – regardless of whether they are materially or functionally related to other measures.
Of considerable significance is the classification of subsequently exceeding or falling below the 15% threshold as a retroactive event within the meaning of Section 175 of the German Fiscal Code (AO). If the taxpayer exceeds or falls below the limit only in the second or third year following acquisition, the tax assessments for previous years must be adjusted. This makes the ongoing monitoring and documentation of expenses significantly more important.
6. Burden of proof, cooperation and circumstantial evidence
Finally, the letter explicitly addresses the burden of proof. In principle, the tax authorities bear the burden of proof for facts that give rise to acquisition or production costs. At the same time, however, the Federal Ministry of Finance (BMF) emphasises the taxpayer’s increased duty to cooperate where the original condition of the building can no longer be readily ascertained.
A new feature is a list of indicators on the basis of which the tax authorities can infer a standard adjustment. These include, in particular:
a comprehensive refurbishment carried out shortly before the acquisition
high expenditure on key fixtures and fittings
significant rent increases following completion of the works
These indicators are likely to play a central role in practice – particularly in tax audits.
7. Conclusion and practical guidance
The BMF letter of 26 January 2026 does not represent a fundamental substantive reversal, but it does consolidate and standardise the previous administrative position to a considerable extent. The greater regulatory detail provides greater legal certainty, but at the same time restricts the scope for individual arguments.
For tax advisory services, this means that arrangements must be planned even more thoroughly in advance. The timing of the acquisition, the scope of the restructuring, the phasing of the measures, and careful documentation of the initial situation will become even more important. In tax audits, the letter will be used as a key reference document in future.