Rental Income Tax in Germany - What Landlords and Investors Need to Know

Owning a rental property in Germany brings taxable income. Many private landlords and investors ask the same questions: What exactly is taxable? Which costs can I deduct? And how do I get it right in the German tax return?

This guide explains rental income taxation in Germany in clear English - written for English-speaking landlords in Germany or the EU. It also explains key German terms like Anlage V, Werbungskosten, and AfA so you can follow the rules without a “hard translation.”

What rental income is taxable in Germany?

Rental income is taxed under Section 21 EStG (Einkuenfte aus Vermietung und Verpachtung). In practice, you are taxed on the profit, not just the gross rent:

Taxable profit = rental income - deductible expenses (Werbungskosten)

What counts as income?

For residential rentals, income usually includes:

• Cold rent (Kaltmiete) plus service charge prepayments (Nebenkostenvorauszahlungen)
• income from parking spaces or garages
• fees for furnished items (e.g., kitchen or furniture)
• income from commercial lets or short-term rentals (e.g., Airbnb)

When is income taxed?

Germany applies the cash-basis principle (Zuflussprinzip): income is taxed in the year it is actually received. If your January rent for 2026 is paid in December 2025, it belongs to the 2025 tax year.

Small-income relief and the basic allowance

Two relief mechanisms are relevant for small profits:

• Grundfreibetrag (basic allowance): If all your income is below the annual basic allowance, you pay no income tax. For 2025, the allowance is EUR 12,096 for singles (double for married couples).
• Haerteausgleich (hardship relief): For small positive side income not subject to wage tax, taxation is reduced. Up to EUR 410 the tax burden is normally zero; between EUR 410 and EUR 820 it is gradually reduced. This only matters for very small rental profits.

Even if tax is ultimately zero, rental income must still be declared in the German income tax return via Anlage V.

Deductible expenses (Werbungskosten): What landlords can claim

Werbungskosten are expenses that are directly related to renting out. They reduce your taxable profit. Common categories include:

1) Depreciation (AfA)

AfA (Absetzung fuer Abnutzung) is the annual tax depreciation of the building value (not the land value).

Standard linear AfA rates for residential buildings:

• 3% per year for buildings completed after 31 Dec 2022
• 2% per year for buildings completed between 1925 and 2022
• 2.5% per year for buildings completed before 1925

If a shorter actual useful life can be proven (e.g., via expert report), higher rates may be possible.

2) Loan interest (not repayments)

Mortgage interest is deductible. Repayments (principal) are not, because they build your own assets. Related financing fees (e.g., bank fees, arrangement fees) can also be deductible.

3) Property tax (Grundsteuer)

Property tax paid by the landlord is deductible in the year of payment. If it is fully passed through to tenants, the income and expense usually offset each other.

4) Condominium service charges (Hausgeld)

For condominiums, monthly Hausgeld includes operating costs, management fees, and contributions to the maintenance reserve (Instandhaltungsruecklage).

• Operating costs and management fees are deductible
• Reserve contributions are not immediately deductible (they become deductible when the reserve is actually used for repairs)

5) Repairs and maintenance

Regular repairs are typically immediately deductible as Erhaltungsaufwand (maintenance). Major upgrades can become Herstellungsaufwand and must be depreciated instead.

Important: the 15% rule. If, within the first three years after purchase, you spend more than 15% of the building acquisition cost (excluding land) on renovation/modernisation, the expenses are treated as anschaffungsnahe Herstellungskosten and must be depreciated rather than deducted immediately.

6) Other common deductible costs

• building insurance (fire, storm, water)
• legal expenses related to the rental
• travel costs to the property (viewings, inspections, owner meetings)
• advertising and broker fees (if paid by the landlord)
• office costs related to the rental
• tax advisor fees for Anlage V
• depreciation of furniture or kitchens (movable assets)

Tip: Only the rented portion is deductible. If you live in part of the building yourself, costs must be allocated proportionally.

Discounted rent to relatives: the 50% / 66% rule

If you rent to family below market level, German tax law limits the full deduction of expenses.

• Below 50% of market rent: the rental is treated partly as a gift -> expenses are only deductible pro-rata.
• Between 50% and 66%: a total profit forecast (Totalueberschussprognose) is required. If it is positive, you may deduct expenses in full. If not, deductions are reduced.
• 66% or more of market rent: the rental is treated as fully commercial -> full deduction is allowed.

This is important for parents renting to children or relatives at reduced rates.

Common tax mistakes landlords make

• Not filing Anlage V (even small income must be declared)
• Forgetting AfA or interest deductions
• Claiming the maintenance reserve immediately (not allowed)
• Misclassifying renovation costs (e.g., ignoring the 15% rule)
• Under-market rent without checking the 50%/66% thresholds
• Confusing VAT rules: residential rent is generally VAT-exempt

Example calculations

Example 1: Profit from a rental apartment

• Annual cold rent: EUR 10,000
• Service charge prepayments: EUR 2,400 (fully offset by costs)

Expenses:

• Loan interest: EUR 4,000
• Depreciation (AfA): EUR 3,000
• Other costs: EUR 700
• Repair: EUR 200

Taxable profit: EUR 10,000 - EUR 7,900 = EUR 2,100

At a 20% tax rate, that is around EUR 420 income tax.

Example 2: Loss from a highly-financed property

• Annual rent: EUR 15,000

Expenses:

• Interest: EUR 12,000
• AfA: EUR 5,000
• Other costs: EUR 4,000

Result: -EUR 6,000 loss

Losses can offset other income (e.g., salary), provided there is a genuine long-term profit intention.

FAQ: Rental income tax in Germany

Do I have to declare rental income?

Yes. Rental income belongs in the income tax return and must be declared in Anlage V.

Where do I enter income and expenses?

In Anlage V you list income (rent, service charge prepayments) and deduct Werbungskosten. The result flows into your overall income tax calculation.

Which costs are not deductible?

For example: loan repayments, private expenses, and depreciation on the land value (only the building is depreciable).

Are service charge prepayments taxable?

They are part of income at first, but normally offset by actual operating costs. Only retained surpluses become taxable.

Can I offset rental losses against my salary?

Usually yes, if the rental is intended to generate profits in the long term (Gewinnerzielungsabsicht).

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