By ruling of 20 September 2022 (Case No. IX R 12/21, published on 15 December 2022) the Federal Fiscal Court (Bundesfinanzhof) put a stop to a practice that had previously been widespread among tax offices: applying the cost approach as the priority or sole determinative method for purchase price allocation for condominiums and multi-family houses. The ruling significantly strengthens the position of landlords – and paves the way for a method-open allocation between land and building that may be more favourable depending on the individual case.

Background: Why the purchase price allocation is so important

Anyone who buys a rented property can only depreciate the building portion of the purchase price – the land portion is excluded. If the total price stated in the purchase agreement is not separately allocated, the tax office and the taxpayer must determine the land value and building value separately and allocate the acquisition costs according to this ratio.

The higher the building portion, the greater the annual depreciation (AfA) and thus the tax-deductible income-related expenses. This is precisely where the potential for conflict lies: for years, the tax authorities applied their own BMF working aid (Arbeitshilfe) and systematically favoured the cost approach in doing so – resulting in comparatively low building portions.

The case

An asset-managing GbR (partnership under civil law) acquired a holiday apartment with an underground parking space on the Baltic Sea coast in August 2013 for €158,500 plus incidental acquisition costs of €14,013. The claimant submitted an appraisal report by a publicly appointed valuer, who had determined a building portion of 84,32 % using the income approach.

Using its own BMF working aid (simplified method), the tax office calculated a building portion of only 58 %. In the objection proceedings, the tax office had its own appraisal report prepared using the cost approach – result: only 51 % building portion. Reformatio in peius included.

The Hamburg Fiscal Court (Finanzgericht Hamburg) in turn engaged a court-appointed publicly appointed and sworn valuer. This valuer found the income approach to be the "only applicable" method in the specific case and determined a building portion of 81,07 %. The claimant adjusted its claims accordingly. Nevertheless, the Hamburg Fiscal Court followed the cost approach appraisal report of the tax office – and dismissed the claim.

The decision

The Federal Fiscal Court overturned the ruling of the Hamburg Fiscal Court and referred the case back for a new hearing. The key findings:

1. All valuation methods are of equal standing. The sales comparison approach, the income approach and the cost approach – all three methods recognised under the ImmoWertV (Real Estate Valuation Ordinance) – are in principle of equal rank. The decision as to which method should be applied depends on the actual circumstances of the individual case.

2. No priority for the cost approach. There is no general priority for the cost approach for certain types of buildings (such as condominiums or multi-family houses). The Fiscal Court had wrongly assumed such a priority and had therefore followed the tax office's appraisal report, even though the court-appointed valuer considered the income approach to be applicable.

3. The income approach is not a hidden residual value method. The tax authorities had argued that the income approach violated the requirement of separate valuation of building and land and was ultimately identical to the residual value method rejected by the Federal Fiscal Court. The Federal Fiscal Court expressly rejected this: the two are not comparable.

4. The BMF working aid is not binding. The allocation results calculated using the BMF working aid can be disregarded if they deviate so fundamentally from the actual value relationships that they cannot be used as a basis for taxation. The greater the discrepancy between the BMF result and the actual purchase price, the more likely a correction by way of an appraisal report is possible.

5. Opening clause for methodological developments. Further developments and new developments in valuation methodology going beyond the standard methods set out in the ImmoWertV are also generally permissible, provided that they are appropriate.

What this means for landlords

An appraisal report can override the tax office. Anyone who submits a methodologically convincing appraisal report for the purchase price allocation is not bound by the BMF working aid. The tax office cannot reject the appraisal report solely because it would apply a different method.

The income approach is often more advantageous. Especially for rented residential and holiday properties, the income approach regularly results in a higher building portion than the cost approach – and thus a larger depreciation base and greater annual tax savings.

A retrospective review is worthwhile. The ruling also opens up possibilities retrospectively: for tax assessments that are still open (subject to review, within the objection period), an appraisal report can be submitted and the allocation reassessed. Tax assessments that have already become final, on the other hand, can only be amended in exceptional cases.

Valuers must provide case-specific justification. The court places great importance on the chosen methodological approach being justified on a case-specific basis. A standardised "mass-produced form appraisal report" without an individual property analysis is unlikely to be upheld.

Connection with other rulings

The ruling is in line with the Federal Fiscal Court's decisions on remaining useful life (IX R 25/19 of 28 July 2021 and IX R 14/23 of 23 January 2024): in both cases, the Federal Fiscal Court refused to impose excessive evidentiary requirements on taxpayers and emphasised openness with regard to methods. IX R 12/21 now explicitly extends this principle to purchase price allocation.

The follow-up ruling Federal Fiscal Court IX R 26/24 (7 October 2025) confirmed this framework for listed heritage properties: there too, the general income approach pursuant to Section 28 ImmoWertV is expressly permissible.