Rental property in Germany: tax deductions, earlier relief and the ten-year rule

What can you offset against rental income?

Germany taxes the rental profit, after eligible income-related expenses, known as Werbungskosten. These rules concern a property rented out to earn income; they do not automatically apply to the home you live in.

Keep invoices and separate rental costs from personal spending. Paying into a homeowners’ maintenance reserve is generally not an immediate deduction: the relevant expenditure must actually be made by the owners’ association. See the tax authority’s landlord guidance and EStG §9.

The building gives you another deduction: AfA

You do not deduct the purchase price in one go. The building portion, including its share of qualifying acquisition costs, is written off over time through depreciation (AfA). Land is not depreciated.

Standard annual straight-line rates for residential buildings are normally 2% for completion in 1925–2022, 2.5% before 1925 and 3% from 2023. First-year depreciation is proportionate to the eligible months. Special regimes can differ.

Purchase-contract notary fees, ownership-registration fees, property transfer tax and purchase-agent fees generally form part of acquisition costs. Only their building allocation feeds into AfA; mortgage-security registration costs are treated differently. Official AfA and purchase-cost guidance.

Watch the renovation rules

Renovation and modernisation within three years of acquisition can become acquisition-related construction costs if the relevant net expenditure exceeds 15% of the building’s acquisition cost. Those costs are then depreciated, rather than deducted immediately. Extensions and substantial improvements can require depreciation independently of that threshold. Check the scope of work before relying on a large immediate deduction. EStG §6(1), no. 1a.

What could the tax benefit look like?

Consider a simplified full-year example for an existing rental apartment, using figures chosen solely to explain the calculation:

If that €3,800 loss can be offset against other taxable income and the relevant marginal tax rate stays at 42%, the approximate income-tax reduction would be €1,596 a year—equivalent to €133 a month. This ignores solidarity surcharge and church tax.

The €133 is a planning equivalent, not an automatic monthly payment. AfA is a non-cash deduction; mortgage repayments are a cash cost without a tax deduction. Your adviser must calculate the tax result and cash flow separately. This example is not a property quote or a promised return.

Do you have to wait for your tax return?

Not always. Eligible projected rental losses can sometimes be recognised during the year, subject to the tax office’s approval:

If you are employed

You can apply for a Lohnsteuer-Ermäßigung. An approved allowance is recorded in your electronic payroll tax details (ELStAM), so your employer withholds less wage tax. This improves take-home pay; it does not create an extra tax benefit beyond the final annual calculation. EStG §39a.

If you pay income-tax instalments

You can ask the Finanzamt to adjust your income-tax advance payments to reflect the expected eligible rental result. Submit a realistic forecast, including rent, interest, expenses and depreciation.

The purchase-year exception matters: ordinary negative rental income from a building is generally recognised for these advance adjustments only from the calendar year after acquisition or completion. Certain special-depreciation cases have exceptions. Purchase-year deductions may still be claimed through the annual return; the restriction concerns advance relief. EStG §37(3), sentences 8–10.

For example, a standard rental property bought in 2026 will generally first qualify for advance loss relief in 2027, even though eligible 2026 expenses can enter the 2026 tax return. Your annual return reconciles the estimates with the actual figures. If the loss is smaller than forecast, you may have tax to pay back. Ask your adviser when an application is possible for your property.

After more than ten years: a potentially tax-free sale

For a rental property held as a private investment, the sale gain is generally free of German income tax once more than ten years have passed between acquisition and sale. That can be an important advantage when planning a longer-term investment.

The relevant dates are normally the binding purchase and sale contracts, not the mortgage repayment date. Have the exact dates checked before signing a sale. Rent received during ownership remains taxable: the ten-year rule concerns the sale gain.

Different treatment can apply to business assets or commercial property trading. If you are also taxable abroad, another country may tax the gain even where Germany does not. EStG §23.

Make the property, mortgage and tax plan work together

A deduction reduces tax; it does not make an expense free. At a 42% marginal rate, €1,000 of deductible interest may reduce income tax by about €420, but you still pay the interest. Borrowing more solely for a deduction does not automatically improve an investment.

At Unconfuse, we believe the product should fit the person. We listen first, then connect you with specialists who can explain the property, financing and personal tax effects together.

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Information checked 4 October 2026. General guidance for privately held German rental property, not individual tax or investment advice. Tax relief depends on the property, income, rental arrangements and residence. Image illustrative.