Deductible vs. Depreciable Costs for a New Build Rental Property (2025 vs. 2026)

2025 (Year of Purchase & Construction)

• Depreciation (AfA) – Not Yet Available in 2025: You cannot start depreciating the building in 2025 because it was still under construction and not ready to rent out. In Germany, depreciation on a property begins only when the building is finished (fertiggestellt) and available for use – in this case, that will be upon completion in 2026, not in the purchase year (So ermitteln Sie die Abschreibung für Ihr Vermietungsobjekt | Ihre Finanzämter des Landes Nordrhein-Westfalen). Thus, no depreciation deduction is claimable for 2025.

• Acquisition Costs (Notary, Agent, Grunderwerbsteuer) – Capitalized,and the Depreciated over time: The one-time purchase-related expenses paid in 2025 – such as notary fees for the purchase deed, real estate agent commission, property transfer tax (Grunderwerbsteuer), and related legal/registration fees – are not directly deductible in 2025. Instead, these costs are treated as part of the property’s acquisition cost basis (Anschaffungsnebenkosten) and will be written off gradually through depreciation over the life of the building (So ermitteln Sie die Abschreibung für Ihr Vermietungsobjekt | Ihre Finanzämter des Landes Nordrhein-Westfalen). In short, they do not reduce your 2025 taxable income; rather, they increase the depreciable value of the property to be recovered once depreciation starts in 2026.

• Financing Interest (Construction Period) – Immediately Deductible: Yes, interest payments made in 2025 on the loan used to finance the building are tax-deductible in 2025, even though the property was not yet generating rent. Interest on a mortgage or construction loan for a future rental property counts as an income-related expense (Werbungskosten) for rental income. Such financing costs are not added to the property’s acquisition cost; instead, they are fully deductible in the year paid as long as you intend to rent out the property (So ermitteln Sie die Abschreibung für Ihr Vermietungsobjekt | Ihre Finanzämter des Landes Nordrhein-Westfalen). German tax law explicitly allows deducting financing expenses incurred during construction or before rental begins as “vorweggenommene Werbungskosten” (preliminary rental expenses), given a clear rental intent (Hauskosten vor der Vermietung von der Steuer absetzen). These interest deductions will create a tax-reducing loss in the rental income category for 2025, which can offset other income or be carried forward if it exceeds your other income.

• Maintenance & Administrative Expenses – Deductible if Related to Rental: If you incurred any other costs in 2025 related to the property’s upkeep or management with the aim of renting, you can typically deduct them in 2025 as well. For example, property taxes (Grundsteuer) on the land or building, insurance premiums during construction, or travel and oversight costs (e.g. trips to inspect the building progress or meet with the developer) are considered part of your rental expenses. Almost any expense that would qualify as a deductible cost during the rental period is also deductible beforehand if it’s directly connected to preparing the property for rental (Vermieter: Werbungskosten schon vor der Vermietung absetzen). Thus, even before rental income starts, these legitimate expenses (e.g. homeowner association fees, utility standing charges, advertising for future tenants) can be written off in 2025, contributing to a rental loss for that year (Hauskosten vor der Vermietung von der Steuer absetzen).

• Pre-Rental Expense Rules (Allocating Costs with No Income yet): All the above 2025 deductions are categorized as “vorweggenommene Werbungskosten” – expenses incurred prior to earning rental income. Importantly, you must claim them in the tax year they arise (report them in your 2025 income tax return under Einkünfte aus Vermietung und Verpachtung) (Vermieter: Werbungskosten schon vor der Vermietung absetzen). There is no fixed limit on how many years you can deduct such costs before rental begins, but you must demonstrate a genuine intent to rent out the property (Vermieter: Werbungskosten schon vor der Vermietung absetzen). In practice, this means keeping evidence of your rental plans (contracts, listings, etc.). In your case, since the apartment was completed and rented in early 2026, the intent to generate rental income is clear – the tax office should fully accept the 2025 pre-rental expense deductions as legitimate losses stemming from future rental activity.

2026 (Year of Completion & Rental Start)

• Depreciation (AfA) – Begins in 2026: Now that the building was finished in February 2026 and immediately rented out, you can start depreciating the property in 2026. Depreciation for the first year is calculated on a pro-rata basis from the month the building became usable. Because the property was completed in February, you can claim 11 months’ worth of depreciation for 2026 (February through December) – the month of completion counts as a full month (So ermitteln Sie die Abschreibung für Ihr Vermietungsobjekt | Ihre Finanzämter des Landes Nordrhein-Westfalen). Going forward, the building qualifies for standard linear depreciation each year (since no special depreciation applies). For a residential rental building completed in 2026, the annual depreciation rate is 3% of the building’s acquisition/construction cost (under current law, residential buildings finished after 2022 are depreciated at 3% per year) (So ermitteln Sie die Abschreibung für Ihr Vermietungsobjekt | Ihre Finanzämter des Landes Nordrhein-Westfalen). The depreciable basis includes the building portion of the purchase price plus all capitalized purchase costs (agent fees, notary, Grunderwerbsteuer, etc.) (So ermitteln Sie die Abschreibung für Ihr Vermietungsobjekt | Ihre Finanzämter des Landes Nordrhein-Westfalen). Each year from 2026 onward, you’ll deduct this depreciation amount, which will directly reduce your taxable rental income.

• Ongoing Interest and Operating Expenses – Deductible in 2026: In 2026 the property is generating rental income, and you can deduct all regular expenses related to the rental. This includes the interest on your mortgage for 2026 (interest remains fully deductible against rental income just as before (Anschaffungskosten bei Immobilien: Was zählt dazu?)), as well as any property management fees, landlord insurance, maintenance or repair costs, utility costs you cover as the owner, property taxes, advertising or tenant acquisition costs, etc. Essentially, any expense incurred for the upkeep and letting of the property in 2026 is tax-deductible in that year. These operating expenses, together with the depreciation, will be summed up against your rental income. If your rental income is less than these expenses (common in the first year due to depreciation and initial costs), you’ll have a net rental loss that can offset other income or carry forward; if rental income exceeds them, you’ll only pay tax on the remaining profit after all deductions.
  

Summary

In 2025, because the rental unit was not yet completed or earning income, you cannot deduct depreciation and cannot yet write off acquisition costs, but you can deduct financing interest and any other rental-related outlays as pre-rental expenses (creating a useful tax loss in that year). In 2026, once the property is completed and rented, depreciation kicks in (at ~3% annually for a new building) and all normal rental expenses (interest, insurance, taxes, maintenance, etc.) become deductible against the rental income. The acquisition costs from 2025 now begin to yield tax benefits as they are absorbed into the depreciation. By understanding this timing, a landlord can anticipate that 2025’s tax savings will come mainly from deductible interest and carrying costs, whereas 2026 will see the full spectrum of deductions including the sizable depreciation expense reducing taxable rental income. Use our help to find rental properties that meet these standards and have good rental and appreciation prospects.