Special depreciation allowance for new rental housing construction
Oct 30, 2025
The Cologne Fiscal Court had to decide whether a special depreciation allowance for new rental housing construction could also be claimed if an existing rental housing building was demolished and new rental housing was built on the same site.
The plaintiffs rented a detached house built in 1962, which became the property of the plaintiff in 1997. Due to structural defects and estimated renovation costs of €106,000, the plaintiffs decided to demolish the house at the end of 2018. After terminating the tenants' lease and successfully obtaining an eviction order from the civil court, the detached house was demolished in June 2020. In the second half of 2020, a new detached house was built on the same site. The plaintiffs applied for a special depreciation allowance of €15,209.43 for the new building.
The legal question was whether the new building created ‘new, previously non-existent living space’ as stipulated in the law. Both the tax office and later the tax court (FG) denied this and rejected the special depreciation allowance. The lawsuit was dismissed.
The FG justified its decision by stating that the newly built house merely replaced existing living space and did not constitute additional living space in quantitative terms. The special depreciation allowance serves the purpose of combating housing shortages, but not mere renovation or modernisation. Even if the new house is technically superior and more modern, this does not alter the fact that there has been no increase in living space. The demolition was not necessarily due to dilapidation. The house was still habitable and renovation would have been economically viable. The new construction was therefore a voluntary decision and merely replaced the previous dwelling without creating any ‘additional living space’.
The fact that the property was vacant for a period of time does not constitute new living space. An energy-efficient construction method, such as KfW-40, is not the sole determining factor for the subsidy period until 2022. Previous BFH rulings are not transferable, as they concerned other versions of the law or old buildings that were extremely dilapidated.
The appeal to the Federal Fiscal Court was allowed due to the fundamental importance of the question of how the term ‘new living space’ is to be understood in the context of demolition and new construction. This has already been lodged. The decision is still pending.
Source: FG Cologne judgement of 12 September 2024 – AZ 1 K 2206/21