Single-family house with undeclared granny flat

I understand that the use case "granny flat in a main apartment" is simply impractical by today's standards and you certainly wouldn't want your tenant running around in the stairwell of your own apartment - however, we would only rent to my parents

I do see a separate "granny flat," but it is unfortunately no longer .your. apartment. Therefore, it is not feasible. Additionally, the 23sqm is too small; it would have to be at least 25sqm. I rather see this as subletting, which, according to my knowledge, is not tax-deductible. Who ultimately uses or rents a granny flat, and whether it is used only on weekends or four times a year, does not matter for the definition.

We have calculated the cash flow over the entire loan term and overall it is profitable for us.

I wasn’t really concerned about the cash flow, but rather whether the depreciation for the rented building portion and the interest expense permanently exceed the income. Otherwise, you would now or possibly later have to pay taxes. In that case, it would be more sensible if the parents gave you the money as a gift rather than handing it over as rent. You can also let your parents stay in the guest room for free.

We would like to live there for 25 years (if nothing comes up). Therefore, it wouldn’t be bad if the acquisition-related costs associated with the granny flat exceed 15% and thus are not deductible as immediate depreciation. Are you referring to this aspect or something else?

Yes, partly.
Also:
When selling non-owner-occupied properties, you still have to pay tax on the speculation gain (sale price minus selling costs) minus (purchase price + incidental acquisition costs + capitalized modernization costs) if you sell the property within 10 years.
Owner-occupied properties that have been used by yourself for at least 2 years are exempt. This would refer to the rented part in your case.
With 25 years that is not a problem though.

As 11ant correctly pointed out, it would be quite special if despite modernization/renovation, you manage a tax attribution so that you stay below 15% in the first three years. But the supreme achievement would be to get a remaining useful life of the granny flat certified at maybe 20 or 25 years (or let's say: for the actual loan term of the granny flat-related loan ;-) ).

A shortened remaining useful life with simultaneous increase in the depreciation rate does not exist for depreciation of real estate except for historical monuments, in my opinion. If I recall correctly the text of §7 of the Income Tax Act, there are no useful lives specified for residential buildings, but fixed percentages of 2% or 2.5% for buildings constructed before 01.01.1925.
With acquisition now and later change of use, this would reduce the remaining useful life in my opinion, but the rate would remain the same.
However, since I have long left the tax consulting industry and no longer prepare income tax returns, this is now just improved layman knowledge. So please read up on it yourself again or ask a tax advisor for legal certainty.

Yes, thanks for the input! Some people get a big sum of money as a gift; we just get rent for the second residence and thus monetize space that we wouldn’t use in the next 5-10 years. We also don’t want to exploit it down to the last euro (hence cautiously 70% instead of 66%). Luckily the city is large enough to offer an official rent index calculator, so I would expect little hassle with the tax office (hope ;-) ).

I don’t want to discourage you, just to highlight cost/benefit/risk again.
You seem quite familiar with most of the tax issues.

I do see a separate “granny flat,” but it is unfortunately no longer .Your. apartment. Therefore, not feasible. Additionally, the 23 sqm are too small; it would probably have to be a minimum of 25 sqm. I rather see this as subletting, which, according to my knowledge, is not tax-deductible.

Who ultimately uses or rents a granny flat and whether it is only used on weekends or 4 times a year is irrelevant for the definition.

One must distinguish between different laws here. Just because one law states something does not mean it applies to another law. Unless it refers to the paragraph. I cannot recall a 25 sqm rule in the Income Tax Act. Here it depends on the intention to generate income. (Permanent surplus of income minus expenses.) And this may also apply to subletting.

Income Tax Act (Einkommensteuergesetz) § 21

(1) 1Income from renting and leasing are 1. income from renting and leasing of immovable property, in particular land, buildings, building parts, ships registered in a ship register, and rights subject to the provisions of civil law concerning land (e.g., heritable building right, mineral extraction right); .... .... (2) 1If the consideration for granting the use of an apartment for residential purposes is less than 50 percent of the local customary market rent, the use must be divided into a remunerated and a non-remunerated part. 2If the consideration for long-term apartment rental is at least 66 percent of the local customary rent, the apartment rental is considered remunerated. (3) Income of the types described in paragraphs 1 and 2 shall be allocated to income from other types of income insofar as they belong to these.

I cannot recall that there is a 25m² rule in the Income Tax Act.

No, there isn't. That's why student apartments are often smaller.

Here it depends on intention to generate income. (Permanent surplus of income minus expenses.)

That’s exactly where, in my opinion, the catch is. The tax office checks whether it exists. According to the OP, probably not. Leaving that aside, with 10% of the area, the yield is marginal anyway. In my opinion, the loan costs are not split. They amount to the total sum of the house. A division of the costs per residential unit should be examined by a tax advisor.

In my opinion, the loan costs are not divided. They amount to the total sum of the house. A split of the costs to each residential unit

.. is accepted by every tax office. Usually according to proportional shares based on the living area. I have also personally had the negative experience that even with two differently declared loans for a two-family house, the tax office did not care. They consider both loans together, calculate a ratio, and that's it.