With the Second Corona Tax Assistance Act, the declining-balance depreciation method, which was abolished in 2011, is being reinstated. The federal government's goal is to create an additional investment incentive and thus stimulate the economy.
Declining-balance depreciation can be applied to movable fixed assets acquired or produced after 31 December 2019 and before 1 January 2022. Larger production facilities may also qualify as movable assets. For buildings, however, the enhanced depreciation does not apply.
If a taxpayer opts for declining-balance depreciation, the asset is written down using the declining book-value method. The depreciation rate is applied to the most recent book value at the end of the previous fiscal year. The depreciation rate is 2.5 times the straight-line rate and may not exceed 25%.
Example:
Acquisition of a machine on 1 January 2020
Acquisition cost: EUR 100,000.00
Useful life: 6 years
Straight-line depreciation 2020:
EUR 100,000.00 / 6 years = EUR 16,666.00
Declining-balance depreciation 2020:
EUR 16,666.00 x 2.5 = EUR 41,665.00
However, no more than 25% of the acquisition cost of EUR 100,000.00 or the respective residual book value
Therefore, maximum declining-balance depreciation = EUR 25,000.00
Applying declining-balance depreciation is advisable for assets with a longer useful life.
A switch from declining-balance to straight-line depreciation is permitted at any time pursuant to § 7 Abs. 3 Satz 1 EStG. At the time of the switch, the remaining book value and the remaining useful life of the asset serve as the basis for the straight-line depreciation.
Frequently asked questions
Frequently asked questions
Which assets qualify for the reintroduced declining-balance depreciation?
The declining-balance depreciation applies to movable fixed assets acquired or produced after 31 December 2019 and before 1 January 2022. Larger production facilities may also qualify. Buildings are excluded from declining-balance depreciation.
What is the depreciation rate for declining-balance depreciation (degressive AfA)?
The depreciation rate is 2.5 times the straight-line depreciation rate, but capped at a maximum of 25%. It is applied each year to the residual book value at the end of the previous fiscal year (declining-balance depreciation on book value).
When is declining-balance depreciation worthwhile?
Declining-balance depreciation is particularly advantageous for assets with a longer useful life, as acquisition or production costs have a greater tax impact in the early years. This results in higher depreciation amounts upfront and a liquidity benefit.
Is it possible to switch from declining-balance to straight-line depreciation?
Yes, a switch from declining-balance to straight-line depreciation is permitted at any time under § 7 Abs. 3 Satz 1 EStG. From the date of the switch, the remaining book value and the remaining useful life of the asset serve as the basis for straight-line depreciation.
How is declining-balance depreciation calculated using an example?
For a machine with acquisition costs of EUR 100,000 and a useful life of 6 years, the straight-line depreciation amounts to EUR 16,666 per year. The 2.5x multiple would be EUR 41,665, but declining-balance depreciation is capped at 25%, so a maximum of EUR 25,000 may be depreciated in the first year.