By ruling of 07 October 2025 (Case No. IX R 26/24) the Federal Fiscal Court (Bundesfinanzhof) ruled on a question of significant practical relevance concerning the tax treatment of listed heritage properties: Must the land value of a listed building be set at zero euros because the building has to be preserved in perpetuity? The BFH's answer: No. The ruling also clarifies which method is to be applied for the purchase price allocation between land and building – and confirms that even listed heritage properties have a finite remaining useful life.

Background: purchase price allocation and depreciation (AfA)

Anyone who acquires a developed plot of land and uses it to generate rental income may only depreciate the building portion of the acquisition costs – not the portion attributable to the land. If the purchase agreement does not state a separate price, the land value and building value must be determined separately, and the total purchase price must be allocated according to this ratio.

The lower the land value share, the higher the depreciation base. In the case of a Section 7 (4) sentence 2 EStG proven shorter depreciation (AfA) period, this has a disproportionate effect.

The case

The plaintiffs acquired a listed heritage building in 2003 for €800,000 (plus €40,468 in incidental costs). They wanted to allocate the entire purchase price to the building, arguing that a listed building, due to the statutory preservation obligation, has an infinite useful life, meaning the land value would be zero. On this basis, they claimed depreciation (AfA) of 4% (Section 7 (4) sentence 2 EStG, remaining useful life of 25 years) on €840,468 – amounting to around €33,619 annually.

The tax office did not accept this: it applied a land value share of 57.44%, calculated a depreciation base of approximately €357,700, and only recognized 2.5% depreciation (€8,943 per year).

The Cologne Fiscal Court (Finanzgericht Köln) obtained an expert opinion. The court-appointed valuer arrived at a land value share of 58.9%, a remaining useful life of 30 years, and clearly rejected a zero valuation of the land. The plaintiffs submitted their own appraisal report, which calculated a land value of zero using the simplified income approach – the Fiscal Court did not follow this and dismissed the claim.

The decision

The BFH partially overturned the ruling of the Cologne Fiscal Court and set the depreciation (AfA) at €11,514. The plaintiffs' appeal was 80% unsuccessful. In its key guiding principles, the BFH clarified:

1. Purchase price allocation is always required. Even for a listed heritage property, the total purchase price must be allocated between land and building. Methodology: determine the land value and building value separately, then allocate the acquisition costs according to this value ratio (Section 7 (4) Sentence 1, Sentence 2 of the German Income Tax Act (EStG) in conjunction withSection 40 (1) ImmoWertV 2022).

2. The general income approach is permissible. The general income approach pursuant to Section 28 ImmoWertV 2022 constitutes a permissible valuation method even for a listed heritage building. The tax authority cannot require that only the simplified income approach be applied.

3. No land value of zero. Heritage protection applies to the building, not the land. Even beneath a listed building, the land retains its own independent value. The BFH does not recognize a “land value dampening” due to heritage protection, nor a zero valuation.

4. Finite remaining useful life. Listed heritage buildings do not have an infinite useful life. The appointed valuer had determined a remaining useful life of 30 years – the BFH confirmed this approach in principle.

5. Property-specific standard land value. When determining the land value, pursuant to Section 40 (1) ImmoWertV 2022, an adjusted standard land value must be applied – not the plain standard land value determined for undeveloped plots. Pure standard land values for standalone, undeveloped plots cannot be adopted unchanged (cf. already BFH ruling of 15 January 1985 – IX R 81/83, BStBl II 1985, 252).

What this means for owners of listed heritage properties

A remaining useful life appraisal report is worthwhile even for heritage-protected properties. The ruling confirms that listed heritage properties can have a finite – and under certain circumstances significantly shortened – remaining useful life. Anyone wishing to assert a shorter actual remaining useful life pursuant to Section 7 (4) sentence 2 EStG needs a methodically sound and comprehensible appraisal report. The formal requirements for this have been significantly relaxed by the Federal Ministry of Finance (BMF) in its letter dated 01 December 2025 (the strict letter dated 22 February 2023 was completely repealed).

Purchase price allocation is not a routine matter. Determining the correct land value share is methodically demanding. Those who set it too low forfeit depreciation potential. Those who set it too high (e.g., land value = zero) risk correction by the tax office, resulting in significant back payments and interest.

Both income approach methods are equally valid. The general income approach (Section 28 ImmoWertV) and the simplified method (Section 29 ImmoWertV) are methodically of equal standing. Which one leads to a more favorable result for the taxpayer in a given case depends on the property's characteristics – and should be examined in advance.

No strategic zero valuation of the land. The argument rejected by the BFH (heritage protection → infinite remaining useful life → land value = €0) is not suitable as a structuring tool. The tax office will reject such approaches; in the event of a dispute, a lengthy objection or litigation process is likely.