Year | Book Value Start of Year | Depreciation | Book Value End of Year

2024 | EUR 600,000 | EUR 30,000 | EUR 570,000

2025 | EUR 570,000 | EUR 28.500 | EUR 541,500

2026 | EUR 541,500 | EUR 27.075 | EUR 514.425

Year | Book Value Start of Year | Depreciation | Book Value End of Year

2024 | EUR 600,000 | EUR 18,000 | EUR 582,000

2025 | EUR 582,000 | EUR 18,000 | EUR 564,000

2026 | EUR 564,000 | EUR 18,000 | EUR 546.000

Income tax law generally provides for a so-called depreciation (AfA) for usable assets. The legislator assumes that objects such as computers, vehicles or real estate wear out evenly over the entire period of use. The acquisition or production costs are therefore to be distributed linearly over the typed useful lives, which can be found in the BMF-AfA tables. In certain cases, however, the owner or entrepreneur has the right to choose to switch to the degressive AfA. For her, the depreciation does not take place in constant, but in falling annual amounts.

First principle: What does degressive AfA mean?

The degressive AfA is also referred to as “deduction for wear in falling annual amounts”. It is based on the assumption that an economic asset wears out less and less in the long term, i.e. the fall in value is particularly high in the first years after acquisition or manufacture. In addition, the degressive AfA is repeatedly used by legislators to promote certain investments.

Because of the degressive depreciation, in particular real estate that is regularly depreciated over 33 or 50 years can be taxed much faster. The decisive criterion for the duration of the degressive AfA is the rate set by the legislature or the standardized division between the individual years.

2. examples of degressive depreciation in the EStG

The Income Tax Act (EStG) contains regulations on the degressive AfA of economic goods in several places. In addition to movable fixed assets, they relate in particular to real estate held in business or private assets.

2.1 Degressive AfA for movable assets

According to § 7 (1) sentence 6 EStG, entrepreneurs can degressively write off movable assets of fixed assets. A necessary condition for this is that a deduction is required according to the performance of the asset. Thus, the legislator at the same time regulates that a linear AfA in the individual case only has to insufficiently represent the actual value ratios or the fall in value.

“Performance” is to be equated with the concept of technical wear. The so-called depreciation of power therefore always comes into consideration when the wear of the object varies considerably over the period of use, for example due to an irregular utilization of vehicles or machines. In these cases, the entrepreneur can make the depreciation, for example, according to operating hours.

Example: A vehicle has a service life of around 10,000 hours. The entrepreneur needs it in year 1 for 500 hours, in year 2 for 4,000 hours and in year 3 for only 1,500 operating hours. Due to the considerable fluctuations in the utilization rate, it may make sense here to exercise the right to vote in favour of the degressive AfA according to § 7 (1) sentence 6 EStG.

2.2. AfA in falling annual amounts for real estate

Since the AfA is only eligible for movable assets under § 7 (1) sentence 6 EStG, other regulations apply to real estate. In principle, the law here only provides for linear depreciation, which applies both to typed periods of use and in cases of a period of use report (§ 7 (4) sentence 1 and 2 EStG). However, deviations are possible if the legislature – for example, in the years from 2023 – wants to promote housing construction.

Paragraph 5a of § 7 EStG introduced by the Growth Opportunities Act enables the degressive AfA with a rate of 5 % per year for real estate serving residential purposes. However, the condition for this is that: