Rental income is taxable -- but the tax burden can be significantly reduced through smart planning. We present the most important deductible expenses and optimisation opportunities for landlords.
Taxing Rental Income Correctly
Income from letting and leasing is one of the seven categories of income under the German Income Tax Act (§ 21 EStG). The tax burden can be substantially reduced by deducting income-related expenses.
What Counts as Taxable Income?
Base Rent and Ancillary Costs
Taxable items include the base rent, advance payments for ancillary costs and additional payments arising from annual statements. The security deposit does not count as income as long as it is held in accordance with the contract.
Below-Market Rent
When letting to relatives: if the rent amounts to at least 50 percent of the local market rent, full deduction of income-related expenses is permitted (§ 21 Abs. 2 EStG).
The Most Important Deductible Expenses
Depreciation (AfA)
For buildings erected after 2022: 3 percent; for older buildings: 2 percent. Only the building component is depreciable.
Financing Costs
Loan interest for property financing is fully deductible, as are disagio charges and processing fees.
Maintenance and Repairs
Maintenance expenditure is immediately deductible. Manufacturing costs must be depreciated over the useful life. Rule of thumb: if only the existing utility value is preserved, it qualifies as maintenance expenditure.
Administrative Costs
Property management, tax advisory fees for Anlage V, legal disputes with tenants, account maintenance fees and travel costs to the property are all deductible.
Property Tax
Property tax is deductible as an income-related expense.
Losses from Letting
Loss Offsetting
Losses can be offset against other income and lead to tax refunds.
Risk of Classification as a Hobby
For long-term residential lettings, the tax authorities generally assume an intention to generate income.
Tax Optimisation
Spreading Maintenance Expenditure
Pursuant to § 82b EStDV, maintenance expenditure can be spread over two to five years.
Timing Investments Strategically
In years with high income, it is worthwhile to bring forward planned repairs.
Avoiding Acquisition-Related Manufacturing Costs
During the first three years after acquisition, modernisation measures should not exceed 15 percent of the building's acquisition costs.
Tax Return: Anlage V
A separate Anlage V must be completed for each property. The careful recording of all income and deductible expenses is essential.
Conclusion
At compleneo, we support landlords with ongoing accounting, tax returns and strategic investment planning. Get in touch with us -- together we will reduce your tax burden sustainably.
