Federal Ministry of Finance – Distinction between maintenance expenses, production costs and pre-acquisition production costs
In a letter dated 26 January 2026, the Federal Ministry of Finance (BMF) completely revised the previous administrative guidelines from 2003 and 2017 on 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 Federal Ministry of Finance (BMF) intends to systematise the case law of the Federal Fiscal Court, which has hitherto been heavily focused on individual cases. The emphasis is less on a substantive change to the legal position and more on standardising and categorising the administrative position taken to date.
1. Systematics and the fundamental decision
The starting point for the new rules remains the well-known fundamental ruling: expenditure on repair and modernisation work is, in principle, to be treated as immediately deductible maintenance expenditure; however, under certain conditions, it may be capitalised as part of the acquisition or production costs and is then only deductible through depreciation.
The main new feature is the clear, tiered audit structure. The Federal Ministry of Finance (BMF) now makes an explicit distinction between:
Acquisition costs
Production costs
Production costs incurred in connection with acquisition
Maintenance expenses
Compared with previous administrative guidelines, the letter defines the tax classification much more clearly on the basis of standardised criteria and specific examples. Whilst this reduces the number of discretionary decisions on a case-by-case basis, it increases the predictability of 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 being ready for use. In future, a two-stage assessment must be carried out:
Objective operational capability: 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 considered to be operational; expenditure incurred to establish this usability for the first time then constitutes acquisition costs. Normal wear and tear or repairable damage caused by wear and tear, on the other hand, do not affect the building’s operational capability.
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), 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 following the case law of the Federal Fiscal Court (BFH), whilst broadening the scope of acquisition costs, as greater emphasis is placed on the purchaser’s subjective perceptions of quality.
3. The new standard approach for residential buildings
The centrepiece of the letter is a new, binding standard scheme for residential buildings. The Federal Ministry of Finance distinguishes between three standard levels: very basic, medium and very high standards.
The standard of a residential building is determined solely on the basis of four features:
Heating system
Plumbing
Electrical installation
Windows
This list is exhaustive. Other measures – in particular energy-efficiency refurbishments – are expressly excluded from the standard provision. The Federal Ministry of Finance (BMF) therefore rejects the notion that energy-efficiency improvements are equivalent to raising the standard.
For the assessment of a standard increase, the letter sets out a standardised interplay between the four key characteristics. In substance, this is in line with previous practice, but is now explicitly codified. The comprehensive assessment previously required is replaced by a standardised rule – this creates legal certainty, but reduces the scope for dealing with atypical cases.
The numerous positive and negative examples, which serve to further define the concept of raising the standard, are of great practical significance. In particular, with regard to heating installations, it is made clear that simply changing the energy source does not, as a rule, constitute a raising of the standard.
4. Cost of production and ‘original condition’
With regard to production costs, the Federal Ministry of Finance (BMF) clarifies, 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 state from being created in the event of multiple transfers made free of charge. In practice, however, this may mean that states dating back a very long time need to be presented and documented.
Of particular practical relevance is the clarification of what is known as ‘renovation in instalments’. A significant improvement may also be deemed to exist where individual measures, when considered in isolation, would not yet be required to be capitalised, but form part of a coherent refurbishment plan. Such a comprehensive measure is generally deemed to exist where the works are carried out within a period of three years. This time-based classification provides clarity, but carries the risk that measures originally treated as maintenance expenditure may subsequently be reclassified.
5. Production costs incurred close to the date of acquisition and retroactive effect
With regard to production costs incurred shortly before acquisition, the Federal Ministry of Finance (BMF) confirms the established 15 per cent 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 a subsequent exceeding or falling below of the 15 per cent threshold as a retroactive event within the meaning of Section 175 of the German Fiscal Code (AO). If the taxpayer only exceeds or falls below the threshold in the second or third year following acquisition, the tax assessment notices 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 expressly 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 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 which the tax authorities can use to infer a standard revaluation. These include, in particular:
extensive refurbishment carried out shortly before the acquisition
high expenditure on key fixtures and fittings
significant rent increases following completion of the works
In practice – particularly during tax audits – these indicators are likely to play a key role.
7. Conclusion and practical guidance
The BMF letter dated 26 January 2026 does not represent a fundamental substantive reversal, but it does consolidate and standardise the existing administrative position to a considerable extent. The greater level of regulation provides greater legal certainty, whilst at the same time limiting the scope for individual arguments.
For tax advisers, this means that arrangements must be planned even more thoroughly in advance. The date of acquisition, the scope of the refurbishment, the phasing of the measures and careful documentation of the initial condition will become even more important. In tax audits, the letter will be used as a key reference document in future.