By ruling of 28 July 2021 (Case No. IX R 25/19, published on 28.10,2021) the Federal Fiscal Court (Bundesfinanzhof) declared that the building fabric report previously demanded by many tax offices as proof of a shorter remaining useful life was not required. The ruling is the most important landmark decision on building depreciation (AfA) under Section 7 (4) sentence 2 of the German Income Tax Act (EStG): it opens up the evidentiary methodology to any professionally suitable approach and lays the foundation for the entire subsequent legal development – including IX R 14/23 (2024) and the repeal of the 2023 BMF (Federal Ministry of Finance) circular effective 01.12,2025.

Background: AfA and shortened useful life

For tax purposes, a standardised useful life of 50 years is assumed for buildings (Section 7 (4) sentence 1 EStG) – corresponding to an annual depreciation rate of 2%. Anyone who proves that their building can actually be used for a shorter period may, under Section 7 (4) sentence 2 EStG apply a correspondingly higher depreciation rate. The question: what exactly must be submitted as proof?

The tax office had regularly demanded a full building fabric report – an elaborate, costly document that analyses the building's technical fabric in detail. The Federal Fiscal Court put an end to this priority.

The case

A property-managing partnership (GbR) acquired a plot of land developed with a residential and commercial building (three individual buildings) in 2002, which was used permanently for rental purposes. In the years under dispute, 2009 to 2013 and 2015, it claimed annual depreciation of approximately €35,763 – based on an appraisal report by a publicly appointed valuer who was a co-shareholder of the GbR. The tax office recognised only the standard depreciation of €21,106 and referred the plaintiff to the necessity of a building fabric report.

The Fiscal Court of Düsseldorf brought in a court-appointed publicly appointed and sworn valuer. This valuer chose the method set out in Annex 4 of the Cost Approach Guideline (Sachwertrichtlinie) (a model for deriving the economic remaining useful life of residential buildings, taking modernisations into account) – rather than a building fabric report – and, following a personal inspection, determined a remaining useful life of 34 years (Building 1) and 32 years (Building 2) respectively. The Fiscal Court ruled in favour of the plaintiff. The tax office appealed.

The decision

The Federal Fiscal Court dismissed the tax office's appeal. The key guiding principles:

1. Freedom of method in proving a shorter remaining useful life. The taxpayer may use any method of presentation to demonstrate the shortened actual useful life, provided it appears suitable in the individual case to furnish the required proof. Section 7 (4) sentence 2 EStG contains no stipulation of a specific method of proof.

2. No building fabric report required. The submission of a building fabric report is not a precondition for recognising a shortened actual useful life. The tax office cannot demand it as a conditio sine qua non.

3. Minimum requirement: sufficiently reliable estimate. The only requirement is that the period during which the building can presumably be used in accordance with its intended purpose can be estimated with sufficient reliability. The basis for this estimate must be an expert report that specifically addresses the individual property.

4. ImmoWertV methodology is fundamentally suitable. The model from the Cost Approach Guideline (SW-RL Annex 4) applied by the court-appointed valuer is a recognised approach – even though it originates from market value determination. There is no legally significant difference between the remaining useful life within the meaning of the ImmoWertV (Ordinance on the Valuation of Real Estate) and within the meaning of Section 7 (4) sentence 2 EStG there is none.

What this means for owners of rented properties

The tax office cannot prescribe the method. Anyone who demonstrates a shorter remaining useful life with a methodically sound appraisal report does not need to submit an elaborate building fabric analysis. What matters is the professional quality and the individual engagement with the specific property – not the format of the document.

Broad spectrum of methods. Recognised methods under the ImmoWertV – cost approach, income approach – are just as suitable as other professionally recognised approaches. Later case law (IX R 14/23 of 23.01,2024) also confirms this: correct application of the ImmoWertV suffices, provided the appraisal report addresses the specific property individually.

On-site inspection remains important. In practice, tax offices and fiscal courts place great importance on the valuer having personally inspected the property. The Fiscal Court of Münster (02.04,2025, 14 K 654/23 E) stated that it tends to consider an on-site inspection necessary. A purely "desk-based" appraisal report carries risk.

Tax office may commission a counter-appraisal. The tax office is entitled to commission its own appraisal report. In practice, however, methodically sound appraisal reports prepared by qualified valuers are overwhelmingly accepted.