Restoring land to the state it had at acquisition is not a second manufacture
Bundesfinanzhof, and a non-wasting asset cannot wear out completely. In its judgment of 21 August 2026Bundesfinanzhof in case IX R 13/25Bundesfinanzhof (online reference STRE202610197) the IX Senate of the Bundesfinanzhof sets aside the Finanzgericht Münster judgment of 3 June 2025Bundesfinanzhof (13 K 356/23 E), remands the caseBundesfinanzhof, and transfers the costs decision to the lower court.
The spouses, jointly assessed for 2019Bundesfinanzhof, dispute whether remediating a supply shaft on a former colliery site yields subsequent production costs of the land or deductible maintenanceBundesfinanzhof. In 1990 they bought the Y-Stadt plot with a disused, filled shaft and a mining-era hall. The shaft stayed with A-GmbH, and they had to keep a 12.5-metre protection zone around its centre free of buildings, storage and traffic. The wife's share always stayed private; the husband's share first sat in his business assetsBundesfinanzhof although he moved the business seat away in early 1998.
A 1997 report had grown the radius to 32.55 metres, blocking any use or construction. Remediation waited until A-GmbH agreed in 2018 to share the costs; afterwards new halls were to be built and let. On 31 December 2018 the husband withdrew his share into private propertyBundesfinanzhof. The shaft was remediated in 2019Bundesfinanzhof, restoring usability comparable to the 1990 acquisition stateBundesfinanzhof. The office treated the net outlay as subsequent production costs, amended the 2019 assessment on 24 January 2022, and the Finanzgericht dismissed the claim, calling the land fully worn out.
The Senate confirms the outlay attaches to the surrounding land, not to A-GmbH's shaftBundesfinanzhof: that finding binds the revision court, and no expert request was made at the hearing.
For the wife's always-private share the lower court was wrongBundesfinanzhof. Production costs follow section 255(1) and (2) of the Handelsgesetzbuch, including for letting incomeBundesfinanzhof: manufacture, extension or substantial improvement beyond the original state, read purposivelyBundesfinanzhof. Later costs can be subsequent production costs where caused by the land's own use rather than by erecting a building, and where the land gains a substantially improved condition, such as through reclamation or development.Bundesfinanzhof Mere preservation stays deductible. The original state is the condition when the taxpayer took the asset in, for acquired land its acquisition date.Bundesfinanzhof Here the lower court bindingly found only restoration of the 1990 stateBundesfinanzhof, so no substantial improvement exists for her shareBundesfinanzhof. Its second-manufacture theory additionally requires a prior first manufacture, which land cannot undergo.
For the husband's share the label is equally wrongBundesfinanzhof, but the third-alternative question cannot be decided yetBundesfinanzhof. The building principles transfer to landBundesfinanzhof: where original acquisition costs had already changed — through other subsequent costs or, for business assets, a substance- or usability-related Teilwertabschreibung — the state at that value change is compared with the post-works stateBundesfinanzhof. Withdrawal plays no role. The lower court never examined whether the husband wrote the business-asset share down for lasting impairment under section 6(1) no. 1 sentence 2 or no. 2 sentence 2 of the Einkommensteuergesetz between 1990 and 31 December 2018.Bundesfinanzhof On remand it must compare the post-write-down state with the post-works state if such a write-down occurred — a substantial improvement then means subsequent production costs — and otherwise compare acquisition with post-works state, which on the binding findings means deductible expenses.Bundesfinanzhof It may first suspend under section 74 of the Finanzgerichtsordnung for a separate uniform assessment of the joint letting income.
Legal basis is section 255(2) sentence 1, third alternative, of the HandelsgesetzbuchBundesfinanzhof and section 6(1) of the EinkommensteuergesetzBundesfinanzhof as applied in BFH IX R 13/25 of 21 August 2026.
If you claim remediation of land held for letting, compare the post-works condition with the condition at acquisition — or, where a Teilwertabschreibung was taken while the land sat in business assets, with the post-write-down condition — and treat only a substantial improvement beyond that benchmark as production costs.
