Who handles a Kernsanierung investment property in Germany for an expat, and how are the renovation costs taxed?

What a Kernsanierung project is

A Kernsanierung (full renovation, literally a renovation to the core) takes an existing building or flat and renews it before it is let: the building services, meaning heating, electrics and water, the bathrooms, the floors, the windows, and sometimes the layout. What stays is the structure, the walls and the location. What changes is everything a tenant sees and pays for. The flat is bought in the condition its previous owner left it, often after decades of the same household, and let for the first time after the work at the rent a modernised flat commands.

It is not a listed-building strategy. Listed buildings carry their own depreciation rules and their own constraints, and LDP usually does not work with them. It is not a new build, and it is not the light refresh of paint and a new kitchen that most buyers call a renovation. A Kernsanierung is a building project with contractors, a budget, a timeline and a permit question, run on an asset that is not earning rent while the work is done. That is why it produces a larger gap between purchase price and rent than any other strategy on this site, and why the tax treatment of the cost decides whether the gap reaches the owner.

Why investors do it: the numbers

The case is simple to state. An unrenovated flat sells below the price of a renovated one in the same building, because most buyers want to move in and most investors want a tenant on day one. The investor who takes on the work buys at the lower price, spends the renovation budget, and sets the rent at the modernised level. Gross rental yield is annual cold rent divided by purchase price; when the rent rises faster than the price plus the budget, the yield rises with it.

The aggregated figures from LDP's published, anonymised cases as of September 2026 show what that produces when it works. Modernised studios and renovated flats, outside the co-living strategy, moved from a gross yield of 2.9 percent at purchase to 4.9 percent after the work, with cold rent after the work at 1.8x the rent before. Across all published cases, every strategy together, the average was 2.9 percent before and 5.3 percent after, also at 1.8x, with a median first-year tax benefit of 21,400 euros in a range from 4,800 to 58,320 euros, and purchase prices from 164,500 to 730,000 euros with a median of 505,000. In Nuremberg, where LDP's cases had a median price of 307,000 euros, the yield moved from 2.9 to 4.9 percent at 1.7x.

The first-year tax benefit in those cases is not a coincidence of the strategy; it is the strategy. A renovation budget that is deductible against income in the year it is spent is worth far more to the owner, at the owner's marginal rate, than the same budget recovered at 2 percent a year over fifty years. Which of those two happens is decided by one sentence in the income tax act.

The 15 percent rule that decides the tax result

§ 6 Abs. 1 Nr. 1a EStG says that expenditure on repair and modernisation carried out within three years of the acquisition of a building counts as acquisition cost of the building if, net of VAT, it exceeds 15 percent of the building's acquisition cost. The German term is anschaffungsnahe Herstellungskosten (acquisition-related production costs). Once the cost is acquisition cost it is depreciated with the building under § 7 Abs. 4 EStG, at 2 percent a year for a building completed 1925 to 2022 and 2.5 percent for one completed before 1925. Below the line, the same work is Erhaltungsaufwand (maintenance), deductible in full in the year it is paid or, at the owner's choice, spread evenly over two to five years under § 82b EStDV.

Three details in the statute matter for a Kernsanierung. The 15 percent is measured against the building share only, never the land, so the land and building split that sets the depreciation basis also sets this line. The costs are counted net of VAT. And the statute excludes two things from the count: extensions that add floor space or substance, which are production cost regardless, and the small routine maintenance that arises every year. Everything else within the window goes into one pot, decorative work included, and the pot is compared with the line once.

It is a threshold, not a taper. At 14.9 percent of the building share the whole amount is maintenance. At 15.1 percent the whole amount is acquisition cost. There is no partial treatment and no allowance for the first 15 percent. One invoice can move the entire budget from one side to the other.

The worked example uses a flat bought for 400,000 euros with a building share of 70 percent, so the building's acquisition cost for the purpose of the rule is 280,000 euros and the line sits at 42,000 euros of net renovation cost within three years of purchase. The example ignores the building share of the purchase costs, which in practice raises the line slightly, and it assumes a building completed after 1924, so a 2 percent rate.

The difference between A and B is not the amount of tax over the life of the building; the capitalised 60,000 euros is recovered eventually. The difference is when. In scenario A the owner deducts the whole budget within five years at most. In scenario B the same owner deducts an extra 1,200 euros a year and waits fifty years for the rest, and if the flat is sold inside ten years, the depreciation taken is added back under § 23 EStG. For an owner whose German income is a salary taxed at the marginal rate, scenario A is the tax benefit that the case figures above describe. For an owner living outside Germany with no other German income, the maintenance deduction produces a loss carried forward against the flat's own future rent, which arrives later but is not lost.

Timing strategies that are legal, and ones that are not

The rule gives the owner three legitimate decisions, and all three are made before the purchase, not after the first invoice.

• Plan the three-year window. The window runs from the acquisition. Work that is urgent, the heating that does not work, the bathroom that leaks, goes first. Work that can wait, and that would tip the pot over the line, is scheduled after the window closes. Scenario C above is this decision. It costs the owner rent in the meantime only if the work prevents letting, which is why the sequence is planned with the letting plan and not against it.
• Separate genuine maintenance from genuine improvement. Replacing a boiler with a boiler is maintenance. Adding a second bathroom where there was none, or extending into the attic, is production cost under the general rules whatever the window says, and it does not count toward the 15 percent pot either. Keeping the two on separate invoices, with descriptions that match the work, is not a trick; it is what the tax office asks for in the first query.
• Accept the capitalised route knowingly. Some buildings need everything at once, and the rent after the work justifies it. Then the whole budget is depreciated with the building, the calculation is run on that basis, and the owner is not surprised by the assessment notice.

One point of the tax administration's long-standing practice needs saying, because it catches Kernsanierung projects specifically: work that lifts the standard of the flat in at least three of the four core features, heating, sanitary, electrical installation and windows, from a basic to a higher standard is treated as an improvement and capitalised under the general production-cost rules, regardless of the 15 percent line. A true renovation to the core often does exactly that. Whether a specific project does is a question for the tax adviser before the budget is signed, and it is one of the reasons the structure is designed with Helm & Partner before the purchase.

What is not a strategy: leaving invoices out of the return, paying contractors without invoices, dating work into the wrong year, or describing an extension as a repair. The tax office compares the return against the purchase price, the building's age and the rent after the work, and a jump in rent with no corresponding cost in the file is the query, not the absence of one. A rule that is a threshold rewards planning and punishes concealment, because concealment is discovered as a whole, and the whole pot moves.

The depreciation basis after capitalising

When the renovation cost is capitalised, it joins the building's acquisition cost and is depreciated at the building's rate: 2 percent a year on the higher basis for buildings completed 1925 to 2022, 2.5 percent for buildings completed before 1925, under § 7 Abs. 4 EStG. In the example, the basis rises from 280,000 to 340,000 euros and the annual AfA from 5,600 to 6,800 euros. Only the building share depreciates; the land never does. The starting split between land and building follows the purchase contract where it states a plausible split, otherwise the working aid published by the Federal Ministry of Finance, and a qualified appraisal can substantiate a higher building share.

A qualified appraisal can also substantiate a shorter remaining useful life for the building, which raises the annual rate above the statutory percentage. For an old building bought for a full renovation this is worth examining, because the age and condition that justify the renovation are the same facts that justify a shorter remaining life. The appraisal is a cost in the year it is commissioned, and it is deductible as a Werbungskosten (income-related expense) under § 9 EStG, as are the loan interest, the management fee, the Hausgeld except the reserve contribution, insurance, travel to the property and the adviser's fees. Loan repayment is not. The rent itself is taxed under § 21 EStG at the owner's personal rate, filed once a year on Anlage V.

Financing a renovation project

A bank financing a Kernsanierung wants the renovation budget in the file, with the contractor quotes, the timeline and the expected rent after the work, because the bank is lending against a building that will be worth more than the purchase price once the work is done and worth less than it if the work stalls. A purchase calculation that shows the price and leaves the renovation to later does not get through the credit department, and it should not.

• Loan-to-value. LDP's working figure for residents of Germany, any nationality including Blue Card holders, is up to 80 percent of the purchase price; published broker figures go to 90 percent. Residents of other EU countries outside Germany are financed at 50 to 60 percent, LDP's own working figure as of June 2026. Buyers living outside the EU are not financed by LDP. Banks discount income in a currency other than the euro by up to 25 percent in some cases.
• Equity. Purchase costs are never financed. Transfer tax is 3.5 percent in Bavaria, 6.0 percent in Berlin, 6.5 percent in Nordrhein-Westfalen and 5.0 percent in Baden-Wuerttemberg; notary and land registry together are roughly 1.5 to 2 percent. Whether the renovation budget is financed inside the loan or paid from equity is decided bank by bank and case by case, and the calculation is run both ways before the reservation.
• Timeline and exit. Financing is coordinated with the independent broker FM Zinswerk, with more than 400 bank partners, about four weeks from first call to bank approval, at no cost to the client because the bank pays the broker. Any fixed-rate German mortgage can be terminated ten years after full disbursement with six months' notice and no prepayment penalty under § 489 Abs. 1 Nr. 2 BGB, which lines up with the ten-year rule for a tax-free sale.

The current rate table and the loan-to-value figures by residency are kept on the mortgage rates page; the financing process for expats, including what the bank asks for, is on the financing page.

Process and timeline

A renovation project runs in a fixed order, and the order is what protects the buyer. No duration is stated here for any step, because each is set per project: an old building with a damp cellar and a two-room flat with a 1980s bathroom are not the same project, and a page that gave one timeline for both would be wrong for one of them.

• Due diligence on the building. Roof, facade, services, damp, the state of the shared parts and the reserve fund of the owners' association, the energy certificate, and for older buildings the materials used. The condition report becomes the renovation scope.
• Budget. Contractor quotes for each trade, a contingency, and the split into maintenance and improvement described above, measured against the 15 percent line and against the rent the work is meant to produce. The founders review the calculation before any reservation.
• Structure. Land and building split, the timing of the work against the three-year window, the § 82b spreading option, and whether a shorter remaining life is worth an appraisal, decided with Helm & Partner before the notary date.
• Purchase. Reservation, financing approval, notary. A buyer abroad can be represented at the notary by power of attorney; a signature given abroad needs notarisation plus apostille, or certification at a German consulate, in the form required by § 29 GBO. LDP asks for a video call before reservation and the power of attorney at least two weeks before the notary date.
• Contractors and permits. Trades coordinated in sequence, permits obtained where the work needs them, consent of the owners' association obtained where shared parts or the appearance of the building are touched.
• Letting after completion. The flat is let at the modernised rent. In designated rent brake areas including Berlin and Munich, § 556d BGB caps a new letting at the reference rent plus 10 percent, and § 556f BGB exempts a flat that has been comprehensively modernised. The courts measure comprehensive against the cost of a comparable new build. A Kernsanierung can reach that standard; whether a specific project does is checked before the rent is set, not assumed.

Risks

• Cost overruns. The budget is the tax plan. A budget that was under the 15 percent line and finishes over it has changed the tax result of the whole project, not only of the overrun. A contingency is a tax instrument here, not only a building one.
• Hidden defects. Damp, old pipes, wiring that does not meet current rules, and materials in older buildings that need specialist removal. They are found by opening walls, and the due diligence before purchase is the only way to price them before they are the buyer's.
• Owners' association consent. Structural changes that touch load-bearing walls, shared services, the facade or the windows need the consent of the Wohnungseigentümergemeinschaft (WEG, owners' association). A renovation plan that depends on consent not yet given is a plan with a hole in it.
• Over-improvement for the local rent level. A flat renovated to a standard the neighbourhood does not pay for produces the cost of a Kernsanierung and the rent of a repaint. The rent after the work is set by the local market and, in designated areas, by the rent brake unless the modernisation is comprehensive. The budget is tested against that rent, not against what the owner would like to live in.
• No rent during the work. The loan is serviced from the first month. A calculation that does not carry the interest during the renovation and the letting period afterwards is incomplete.

How LDP handles a Kernsanierung project for clients

LDP Group is a Munich-based firm, active since 2022, that has served more than 100 clients, most of them expats buying a first investment property in Germany. Four services run as one process, in English throughout, and the founders Nicholas Runtic and Abdelrahman Maged review every purchase calculation. LDP works with existing buildings only, from a purchase price of 100,000 euros upward, in Berlin, Munich, Nuremberg, Erlangen, Fuerth, Duesseldorf, Cologne, Stuttgart and Karlsruhe. For a full renovation project the order is:

• Structure before purchase. Tax-optimised structuring: LDP designs the structure, the land and building split, and the renovation plan timed against the 15 percent line; the tax advice and filings come from the partner firm Helm & Partner, with an annual German return available case by case.
• Sourcing. Property sourcing and acquisition looks for unrenovated existing flats and buildings whose price, condition and location support the modernised rent, with viewings on the client's behalf with photos and video, and remote purchase by power of attorney.
• Financing. Mortgage financing coordination with FM Zinswerk, the renovation budget in the bank file from the start, about four weeks to approval, for residents of Germany and other EU countries.
• Renovation. Contractors coordinated in sequence against the plan, with the maintenance and improvement split kept on the invoices.
• Letting and management. Rental management and tenant placement at a flat fee from 30 euros per tenant per month depending on the city, no percentage of rent and no placement fee, through LDP's own company FairMieten in Berlin and Bremen and vetted partners elsewhere, with screening for income of about three times the rent, SCHUFA and employer confirmation, and viewing videos and digital protocols for owners abroad.

Sourcing, financing coordination and structure design carry no separate fee to the client. The first step is a free 30-minute screening call, in which residency, budget, horizon and the appetite for a building project are checked before any property is discussed. The services page lists scope and fees in one place.

Limitations and what we do not know

• We are a property investment firm, not tax advisers. The statute references are checked as of September 2026 and describe the rules, not a specific return. The tax effect of a deduction depends on the owner's marginal rate, which this page does not assume.
• The worked example measures the 15 percent line against the building share of the price alone. The statutory basis is the building share of the full acquisition cost, which includes transfer tax, notary and land registry, so the real line for that flat sits somewhat higher than 42,000 euros. The building share of 70 percent is an assumption, not a valuation.
• The three-of-four core features test for improvements is the tax administration's practice as we understand it; we have not re-verified the current wording of the ministry guidance for this page, and a project close to that test needs the adviser's view before the budget is signed.
• The case figures are averages across LDP's own published, anonymised cases, describe completed projects, and are not a forecast for any building. The first-year tax benefit range reflects owners with different incomes and residencies.
• No renovation cost, duration or contingency is stated because each is set per project. A figure given here would be wrong for most projects.
• Whether a specific renovation qualifies as comprehensive modernisation under § 556f BGB, and whether the owners' association consents to structural changes, are decided case by case and are not predictable from this page. The tax treatment in the owner's home country is outside its scope.

What would change this answer

• A change to § 6 Abs. 1 Nr. 1a EStG, in particular the 15 percent figure or the three-year window, or a new Bundesfinanzhof ruling on which costs are counted toward the line.
• A change to the AfA rates in § 7 Abs. 4 EStG or to the conditions for claiming a shorter remaining useful life.
• A change to the ministry guidance on when a renovation lifts the standard of a flat and becomes production cost regardless of the line.
• A change to § 556f BGB or to the state ordinances designating rent brake areas, which would move the rent after the work in Berlin and Munich.
• A refresh of the LDP mortgage rate table, the loan-to-value figures by residency, or the aggregated case figures.

Last reviewed September 14, 2026. Reviewed by Nicholas Runtic and Abdelrahman Maged, co-founders of LDP Group, before publication and at every review date. We review this page every quarter and after every Jahressteuergesetz; if you read it more than three months after the date above, check § 6 Abs. 1 Nr. 1a and § 7 Abs. 4 EStG before relying on a figure.

Frequently asked questions

Sources

• § 6 EStG, Bewertung, Abs. 1 Nr. 1a anschaffungsnahe Herstellungskosten (gesetze-im-internet.de)
• § 82b EStDV, Behandlung größeren Erhaltungsaufwands bei Wohngebäuden
• § 7 EStG, Absetzung für Abnutzung, Abs. 4
• § 9 EStG, Werbungskosten
• § 21 EStG, Einkünfte aus Vermietung und Verpachtung
• § 23 EStG, private Veräußerungsgeschäfte (ten-year rule and AfA add-back)
• § 556d BGB, zulässige Miethöhe bei Mietbeginn (rent brake)
• § 556f BGB, Ausnahmen (comprehensive modernisation exception)
• § 489 BGB, ordentliches Kündigungsrecht des Darlehensnehmers (mortgage exit after ten years)
• § 29 GBO, Form der Erklärungen (power of attorney for the land registry)
• BMF Arbeitshilfe zur Kaufpreisaufteilung (land and building split)
• LDP mortgage rate table and loan-to-value by residency
• LDP city dataset 2026, city-wide yields for comparison
• Helm & Partner, tax firm for the advice and filings
• FM Zinswerk, mortgage broker