Germany Rental Income Tax Guide (Einkünfte aus Vermietung und Verpachtung)
Rental income in Germany is classified as Einkünfte aus Vermietung und Verpachtung and taxed at your personal progressive rate (up to 45%). Allowable deductions include: 2% straight-line depreciation (AfA) on building costs, mortgage interest, notarial and legal fees for the purchase (amortised over the useful life), repair and maintenance costs, management fees, and Grundsteuer. Losses are generally deductible against other income unless the Finanzamt classifies the activity as Liebhaberei (hobby).
If you own a rental property in Germany, the net rental income (Mieteinnahmen minus Werbungskosten) is added to your other income and taxed at your marginal income tax rate. The key advantage is that many costs are deductible upfront, often producing tax losses in the early years of ownership. Unlike some countries, Germany allows rental losses to offset other income unrestricted (subject to Liebhaberei rules). For related reading, see our Property Investment Guide → and Property Tax Guide →.
Allowable Deductions (Werbungskosten)
- Depreciation (AfA — Absetzung für Abnutzung): 2% per year of the building's acquisition or construction cost for buildings constructed before 2023. For residential buildings completed after 1 January 2023, the rate is 3% (declining balance the first year, then straight-line). The land portion of the purchase price is not depreciable — only the building structure. Typical split: 70%–80% building, 20%–30% land.
- Financing costs (Schuldzinsen): Mortgage interest on loans used to acquire, construct, or renovate the rental property is fully deductible. Not deductible: principal repayments (Tilgung). Also deductible: loan origination fees (Bearbeitungsgebühren) amortised over the loan term.
- Repairs and maintenance (Erhaltungsaufwand): Ongoing repairs, maintenance, and minor improvements are fully deductible in the year incurred. Major renovations that extend the building's life or significantly increase value must be capitalised and depreciated over 2%–3% per year (Herstellungsaufwand).
- Management and administration: Property management fees (Hausverwaltung), Vermieterverein (landlord association) membership, legal costs for rental disputes, and travel costs to inspect the property are deductible.
- Other deductible costs: Grundsteuer (property tax), building insurance (Gebäudeversicherung), liability insurance (Haftpflichtversicherung), vacancy costs if you are actively seeking tenants, and advertising costs for tenant searches. Also: fees for the property manager, cleaning of common areas, and garden maintenance.
Liebhaberei and Loss Limitation Risks
- Total income test (Totalüberschussprognose): If your rental property consistently produces losses year after year, the Finanzamt may question whether you have a genuine profit motive (Einkunftserzielungsabsicht). A multi-year projection showing a total surplus over the building's useful life (typically 50–80 years) is required to keep losses deductible.
- Liebhaberei classification: If the Finanzamt classifies your rental activity as Liebhaberei (hobby), losses are no longer deductible against other income, and future profits also become tax-free. This classification is most common with luxury properties, properties rented below market rates, or vacation homes with excessive personal use.
- Partial rental (teilweise Vermietung): If you rent out only part of your own home (e.g., a room on Airbnb), different rules apply. The income is still Vermietung und Verpachtung, but deductible expenses are limited to the rented proportion. The personal-use portion is non-deductible.