Depreciation (AfA): straight-line, declining-balance, and buildings

A joinery buys a CNC milling machine in April 2026 for 60,000 € net, with a normal useful life of ten years. The owner expects a depreciation charge of 6,000 € in the first year. Her tax adviser gives two quite different figures: 4,500 € with even spreading, 13,500 € with declining annual amounts. Both are correct, and the gap of 9,000 € is a choice that is only open within a particular time window.

Why assets are depreciated: the useful life

Buying a machine does not destroy wealth; money is simply exchanged for an object. An expense only arises as that object wears out. German income tax law captures this wear in section 7 of the Income Tax Act (EStG), for every asset whose use in earning income normally extends beyond a single year.

For such an asset, each year the share of the purchase or production cost is deducted that falls on one year when the cost is spread evenly over the whole period of use. The statute calls this depreciation in equal annual amounts. In practice people simply say AfA, or straight-line depreciation.

The yardstick is the normal operating useful life: the period for which an asset of this kind is typically used in a business of this type. How long the owner personally intends to keep it does not matter. Someone planning to sell a machine after three years still depreciates it over its ordinary life.

Where does that period come from in a given case? The tax administration publishes official depreciation tables, the AfA-Tabellen, which give a customary useful life for a large number of assets. They are administrative guidance rather than statute, but the tax office measures any different estimate against them. Anyone claiming a shorter life must be able to justify it.

This course deliberately quotes no values from those tables: the official page could not be retrieved on the day of research, and a useful life taken from memory is exactly the kind of figure that later gets corrected in an assessment. Look up the period for your asset in the current table.

One period is fixed by statute itself. For the goodwill of a trade or of an agricultural or forestry business, section 7(1) sentence 3 always prescribes fifteen years. Whoever buys a business together with its customer base therefore spreads the premium paid over that fixed period.

Not every purchase goes through this spreading. Small movable items may be expensed at once under section 6(2) or placed in a collective pool; both are explained in the course on bookkeeping duties and cash-basis accounting, and this course picks up where those simplifications stop.

The year of purchase: twelfths, not days

Hardly any asset is bought on 1 January. For the year of acquisition or production, section 7(1) sentence 4 therefore cuts the full annual charge. One twelfth is removed for every full month preceding the month of acquisition. The month of acquisition itself always counts in full.

The joinery in the opening example bought in April. Three full months come before April: January, February and March. Of twelve twelfths, nine remain. The straight-line annual charge of 6,000 euros shrinks to 4,500 euros in the first year, and that remainder is caught up at the very end of the useful life.

A common arithmetic slip counts the months from the following month. Anyone who buys in April but starts counting in May arrives at eight twelfths and gives away one month every time this happens. The wording is clear: the reduction covers only the months before the purchase.

Conversely, a purchase in December still earns one twelfth of the annual charge. The once widespread idea that a purchase in the second half of the year earns a flat half-year charge has nothing to do with today's statutory text. The calculation runs month by month.

Declining-balance depreciation and its time window

Besides even spreading, section 7(2) allows depreciation in declining annual amounts. Each year a fixed percentage is applied not to the original cost but to the current book value. Because the book value falls, so does the charge: a lot at the start, little at the end.

This method is not always available. In the version read on 23 September 2026, it applies to movable fixed assets acquired or produced after 30 June 2025 and before 1 January 2028. A purchase made in 2026 therefore sits right in the middle of the window.

Outside that window only the straight-line method remains. Anyone planning a larger purchase that is due anyway should not leave the date to chance. The wording ties the rule to acquisition or production, not to the order and not to the payment.

The percentage is capped twice. It may be at most three times the straight-line rate, and it may not exceed thirty percent. Both caps apply at once and the lower one always governs. Which of them bites depends solely on the useful life.

With ten years, the straight-line rate is ten percent, so three times that is thirty percent: both caps coincide. With five years, the triple would be sixty percent, and the fixed thirty percent cap bites. With twenty years, the triple is fifteen percent, which stays below the fixed cap.

The twelfths rule applies here too, because subsection 2 expressly refers to subsection 1 sentence 4. For the milling machine in the opening example this gives thirty percent of 60,000 euros, that is 18,000 euros, of which nine twelfths: 13,500 euros in the first year, against 4,500 euros on a straight-line basis.

One restriction is often overlooked. Anyone depreciating on a declining-balance basis may not claim depreciation for extraordinary technical or economic wear. If you expect an asset to suffer major damage or a sudden loss of value, keep that in mind when choosing the method.

Switching to the straight-line method

The declining-balance charge shrinks every year and, mathematically, never reaches zero. At some point, spreading the remaining value evenly yields more. Section 7(3) therefore allows a switch from declining-balance to straight-line. From the switch onwards, the remaining book value is spread over the remaining useful life.

The reverse route is expressly prohibited. An asset started on a straight-line basis can never move to declining amounts later. The decision in favour of the declining-balance method is therefore taken in the year of purchase, and whoever does not take it then has lost it for that asset.

The underlying calculation is always the same. Each year, compare the declining-balance charge with the remaining value divided by the remaining years. As soon as the second figure is larger, the switch pays. Because it is final, it happens exactly once, and afterwards the charge stays constant until the end.

Units-of-production depreciation and extraordinary wear

For movable fixed assets whose wear depends heavily on how hard they are used, subsection 1 sentence 6 provides a third method. Depreciation follows output rather than years, for instance kilometres driven or machine hours. It must be economically justified, and the output of each year has to be evidenced.

Without that evidence, such as an hour meter or a logbook, the method is not available. It therefore suits mainly vehicles and machines with strongly fluctuating utilisation, where even spreading would reflect actual wear poorly.

Whatever the method, sentence 7 allows depreciation for extraordinary technical or economic wear. Fire damage or a specialised machine that suddenly becomes unsaleable can justify it. If the reason later disappears, a write-up is required where profit is determined by balance sheet. With declining-balance depreciation, as shown, it is excluded.

Electric vehicles: a schedule of their own

For electric vehicles within the meaning of the Motor Vehicle Tax Act that belong to fixed assets and are acquired in the same time window, subsection 2a sets a fixed schedule. It replaces both the straight-line and the declining-balance method and follows a statutory profile rather than the useful life.

In the year of acquisition, seventy-five percent of the cost is deductible, ten percent in the following year, five percent in each of the next two years, then three percent and finally two percent. The total is exactly one hundred percent. The twelfths rule expressly does not apply: even a December purchase earns the full first rate.

The price of this schedule is a waiver. It can only be used if no special depreciation has been claimed for the same vehicle. Anyone wishing to use the special depreciation under section 7g, covered in the second module, has to stay with ordinary depreciation for that vehicle.

Buildings: fixed rates instead of a useful life

Buildings are not movable assets, and subsection 2 does not apply to them. Subsection 4 replaces the individual useful life with fixed annual rates on the purchase or construction cost. Land does not wear out and is not depreciated at all, which is why the purchase price of a property has to be split.

Business buildings that are not used for housing and whose building application was filed after 31 March 1985 are depreciated at three percent a year. The typical workshop or office building held as a business asset falls into this group. Three percent corresponds to spreading over just over thirty-three years.

For all other buildings, in particular rented flats, the rate depends on the year of completion. Buildings completed after 31 December 2022 get three percent, those completed between 1925 and the end of 2022 get two percent, and older buildings completed before 1925 get two and a half percent.

If the actual useful life is shorter than the period these rates assume, sentence 2 permits a higher charge. The thresholds are thirty-three, fifty and forty years depending on the group of building. The shorter life must, however, be proven, for example by an expert valuation.

New residential buildings also have a declining-balance option. Under subsection 5a, residential buildings located in Germany or elsewhere in the European Economic Area may be depreciated at five percent of the book value each year if construction began after 30 September 2023 and before 1 October 2029.

The start of construction is the date on the notice of commencement required by the law of the federal state. Here too, switching to straight-line is allowed, and the twelfths rule applies in the first year. A buyer only qualifies if the building is purchased by the end of the year in which it was completed.