How do expats and non-residents reduce tax on German rental property?

What the levers are worth: first-year tax effect in LDP Group client cases

Before the rules, the order of magnitude. In the client cases LDP Group has published, the estimated first-year tax effect ranges from 4,800 EUR to 58,320 EUR per purchase, with a median of 21,400 EUR. The figure is the reduction in that client's income tax in the first full year of ownership, as calculated in the business case before the purchase and driven by depreciation, loan interest and renovation costs. It is an estimate for that client's income, not a tax assessment, and it describes owners who live in Germany and set the rental loss against a German salary.

Two things follow. The effect depends on the owner as much as on the flat: the same flat produces a smaller figure at a lower marginal rate, and for an owner living abroad it produces a loss carried forward, not a refund in year one, as the worked example further down shows. And none of it is a product. Every figure comes from the four levers in the statute that the rest of this page explains. In a purchase through LDP Group the tax structure is set with the partner tax firm Helm & Partner; LDP Group coordinates the property side and gives no tax advice. All cases with photos and rents are on the client cases page.

The German terms, if you search in German or talk to a Steuerberater: Steueroptimierung (tax optimisation), Immobilie als Kapitalanlage (property as an investment), Vermögensaufbau (building wealth), Abschreibung or AfA (depreciation), Werbungskosten (income-related expenses), Kaufpreisaufteilung Grund und Boden (the split of the price between land and building), Erhaltungsaufwand (maintenance cost), anschaffungsnahe Herstellungskosten (the 15 percent rule), Spekulationsfrist (the ten-year holding period) and Anlage V (the rental schedule of the tax return).

How Germany taxes rental income (Einkünfte aus Vermietung und Verpachtung)

Rent from a German flat is income from letting under § 21 EStG, taxed at the owner's personal progressive rate together with everything else. There is no flat landlord tax and no withholding: the owner files, once a year, on the form Anlage V. What is taxed is not the rent but the surplus after deductions, and in the first years of a financed purchase that surplus is often negative.

If the owner lives abroad, the same income is caught by § 49 Abs. 1 Nr. 6 EStG as limited tax liability, and the return goes to the tax office of the district where the flat stands. Two things change for a non-resident. First, § 50 Abs. 1 S. 2 EStG adds the basic allowance to the taxable income before the tariff is applied, which is a technical way of saying the tax-free band does not apply: German rent is taxed from the first euro of surplus. Second, the non-resident's foreign salary is invisible to Germany, so a German rental loss has nothing German to offset. It is carried forward under § 10d EStG and used against the flat's own future surplus. That single difference explains most of the gap between what a resident and a non-resident get out of the levers below.

Non-residents of any country whose income is at least 90 percent German-taxable, or whose non-German income does not exceed the basic allowance (12,348 euro in 2026, lower for some countries of residence), can apply to be treated as fully liable under § 1 Abs. 3 EStG and recover the allowance; for someone with a salary in Amsterdam or Vienna and one flat in Leipzig both tests fail, so the election is rarely available to the people who ask about it.

Every double taxation treaty Germany has signed follows the model rule that income from immovable property may be taxed where the property lies. The residence country then exempts the German rent or credits the German tax. Which of the two it does, and whether it taxes the rent a second time on its own rules, is a question about the owner's country, not about Germany, and it belongs to a local adviser.

Lever 1: depreciation (AfA) on the right basis, with the right land split (Kaufpreisaufteilung)

AfA, the building depreciation under § 7 Abs. 4 EStG, is the largest deduction on most flats and the one most often booked too small. Three things decide its size.

• The rate. 2 percent a year for buildings completed between 1925 and 2022, 2.5 percent for older buildings, 3 percent for buildings completed from 2023. New residential buildings whose construction began between 1 October 2023 and 30 September 2029 may instead take 5 percent declining-balance under § 7 Abs. 5a EStG, with a later switch to the straight line. A shorter actual useful life can be claimed under § 7 Abs. 4 S. 2 EStG with a building expert's report, which the Bundesfinanzhof accepted in 2021 and the Finanzverwaltung now processes under conditions set out in a 2023 letter.
• The basis. Not the price, and not only the building. The basis is the building share of the total acquisition cost, and total acquisition cost includes transfer tax, notary and land registry fees and the buyer's agent commission. On a €400,000 flat in Saxony those add 5.5 plus 2 plus 3.57 percent, so the basis starts at €444,280 before the land is taken out.
• The land split. Land is never depreciable, so the share attributed to it is the share lost. The purchase contract may state a split, and a plausible contractual split is accepted; where none exists, the tax office applies the Finanzministerium's spreadsheet, which the Bundesfinanzhof ruled in 2020 is a starting point and not binding when it produces an implausible land share. For an inner-city flat in Munich the difference between a 40 and a 25 percent land share is 15 percent of the whole basis, every year, for fifty years. A draft law (Jahressteuergesetz 2026, § 6f EStG, not yet passed) would set statutory rules for this split for contracts signed after it takes effect.

New-build investors have a fifth lever inside this one: § 7b EStG allows a special depreciation of 5 percent a year in the year of purchase and the three following years, on top of the ordinary rate, for new rental flats with a building application between 1 January 2023 and 30 September 2029, construction cost of at most €5,200 per square metre, on a basis capped at €4,000 per square metre, and the Efficient House 40 standard with the QNG sustainability seal. Together with the declining balance that is up to 10 percent of the building cost in the first year, which is why new-build projects that qualify are marketed on it.

Lever 2: everything the flat costs is Werbungskosten, except the repayment

§ 9 EStG allows every expense incurred to earn the rent. The list is longer than most owners book:

• Loan interest in full, and the arrangement disagio in the year it is paid where it is within the usual range for the fixed period. Commitment interest while the loan is undrawn. A prepayment penalty, where the flat stays let after the refinancing.
• The part of the monthly Hausgeld that the tenant does not pay: management fee, reserve contributions once they are actually spent on the building (the contribution itself is not yet deductible, the Bundesfinanzhof confirmed that in January 2025), non-recoverable insurance and administration.
• Property management, tenant search, the tax adviser's fee for Anlage V, bank charges on the rental account, travel to the flat for inspections and handovers, and the property tax where the lease does not pass it on.
• A fitted kitchen supplied with the flat is depreciated separately over ten years (Bundesfinanzhof, 2016), and furniture in a furnished let over its own useful life.
• Not deductible, ever: the loan repayment (Tilgung), the owner's own labour, and costs of a flat that is empty without a documented letting effort.

For a non-resident the practical trap is documentation, not the rules. Interest certificates from a foreign bank, foreign management invoices and travel from abroad are all allowable, and all of them are queried. Keeping the flat's costs on one German account makes the return an hour's work instead of a week's.

Rent that does not arrive: what a defaulting tenant does to the tax result

The objection appears in every expat forum: German tenants are hard to remove, so what happens to the tax plan when one stops paying? The answer has three parts, and all three are more mechanical than the forums suggest.

Lost rent is not a deduction. German rental income is taxed on receipt (§ 11 EStG). Rent that never arrives is simply not income, so there is nothing to deduct and nothing to declare; the loss shows up as a lower Anlage V, not as a line of its own. The deposit that is drawn on to cover arrears is income in the year it is drawn.

The costs of getting the flat back are deductible. The reminder letters, the lawyer, the court fees of the eviction claim and the bailiff are all incurred to secure rental income and are Werbungskosten under § 9 EStG, as are the interest and Hausgeld that keep running while the flat produces nothing. For the duration of the case the flat therefore produces a tax loss that offsets other German income, which is cold comfort but real money at a marginal rate above 40 percent.

The legal position, in one paragraph. Under § 543 Abs. 2 Nr. 3 BGB the landlord may terminate without notice once the tenant is in arrears on two consecutive payment dates with more than an insignificant part of the rent, or once the arrears over a longer period add up to two months' rent. A written termination follows, then, if the tenant does not leave, an eviction claim (Räumungsklage) at the local court. The court phase takes about three to six months in a simple case and in practice often six to twelve months; enforcement by the bailiff adds one to three more. The cost is set by the value in dispute, usually the annual net cold rent, and lands first with the landlord: roughly 1,500 to 2,500 EUR of court and lawyer fees for a small flat, recoverable from the tenant only if the tenant can pay. One rule surprises every foreign owner: under § 569 Abs. 3 Nr. 2 BGB the tenant can cancel the no-notice termination by paying the full arrears within two months of the eviction claim being served, once in any two years. The Bundesgerichtshof confirmed (VIII ZR 307/21, judgment of 5 October 2022) that this grace payment does not undo an ordinary termination issued alongside it, which is why every termination for arrears is sent in both forms.

What the protection rules mean for the tax plan. The strategy some investors bring from other markets, buy tenanted, end the tenancy, re-let at market, does not exist in Germany. Under § 573 BGB a landlord needs a legitimate interest to terminate and a higher rent is expressly not one; notice runs three to nine months under § 573c BGB; a converted and sold flat carries a three-year block on own-use and economic-use termination under § 577a BGB, up to ten years in designated areas. Rent moves within § 558 BGB, at most 20 percent in three years, 15 in tight markets. So the depreciation and the interest are planned on the rent the flat pays today, and the exit is planned on the ten-year rule, not on a vacant-possession premium.

The fourth cost is time. Anlage V, the operating cost statement within twelve months, the separate deposit account and the arrears process are the owner's duties whether or not a manager is hired; a manager's fee is deductible, an owner's own hours are not. The trade-off is set out task by task in self-managing versus a professional manager.

Lever 3: repairs (Erhaltungsaufwand), the 15 percent rule, and spreading

Renovation after purchase is where the tax result is made or lost. Maintenance and repair of an existing flat is Erhaltungsaufwand, deductible in full in the year it is paid, and under § 82b EStDV it may instead be spread evenly over two to five years, which matters for an owner whose German income is small in the purchase year. But § 6 Abs. 1 Nr. 1a EStG converts the whole of it into acquisition cost, depreciable at 2 percent instead of deductible at 100, if the net cost of repairs and modernisation within three years of the transfer of possession exceeds 15 percent of the building's acquisition cost. The three Bundesfinanzhof judgments of 14 June 2016 put decorative work such as painting and wallpapering into the same pot. It is a cliff, not a scale: at 14.9 percent everything is deductible, at 15.1 percent nothing is.

The consequence is a timing decision the owner can actually make. A €50,000 refurbishment on a €300,000 building either happens in year four, or it happens as €44,000 in the first three years and the rest later, or the owner accepts the depreciation route knowingly because the work raises the rent enough to justify it. What the owner should not do is find out about the threshold from the assessment notice. The tax office applies the BMF letter of 26 January 2026: work that runs past the three years counts only with the part done by then, and work below the 15 percent line can still be treated as acquisition cost if it is the start of a staged renovation (Sanierung in Raten) that upgrades at least three of heating, sanitary, electrics and windows. Plan the split with the tax adviser.

Energy-efficiency work is a special case: the 20 percent tax reduction under § 35c EStG exists only for owner-occupied homes. On a let flat the same work is an ordinary Werbungskosten or, above the 15 percent threshold or where it adds substance, part of the depreciation basis. That is neither better nor worse in the long run, but the cash timing is different.

Lever 4: the exit after the ten-year Spekulationsfrist, and what depreciation does to it

A privately held flat sold more than ten years after purchase is outside § 23 EStG and the gain is not taxed. Inside ten years the gain is income at the full progressive rate, and the depreciation claimed in the meantime is added back: under § 23 Abs. 3 S. 4 EStG the gain is the sale price less the acquisition cost reduced by the AfA taken. So on a sale in year six, every euro of AfA that reduced rental income at 42 percent comes back as gain at 42 percent. Depreciation before year ten is a deferral; after year ten it is a saving. That is the single most important reason the LDP model is built on holding, and it is why the ten-year date belongs in the owner's calendar on the day of purchase.

Three details from our page on leaving Germany apply here unchanged: an inheritance is not an acquisition, so the heir takes over the clock (§ 23 Abs. 1 S. 3 EStG); the self-use exemption needs occupation across three calendar years of which only the middle one must be complete; and selling more than three properties within five years can make the owner a dealer, with trade tax and the loss of § 23 altogether.

One flat, two owners: the worked example

The figures below use a Leipzig flat bought for €400,000, built in 2005, financed at 60 percent loan-to-value at 4.0 percent, let at €1,150 cold rent a month, with a 20 percent land share. Acquisition costs in Saxony are 5.5 percent transfer tax, about 2 percent notary and land registry, and 3.57 percent buyer's agent fee.

The resident owner is €1,810 better off in year one because the loss reduces her salary tax. The non-resident owner keeps a loss that will absorb the first years of surplus once the interest falls with repayment: on the same flat, with 2 percent annual repayment and rent rising 2 percent a year, the taxable result turns positive around year ten, and the roughly €20,000 of losses carried forward from the first nine years cover the surplus until about year sixteen. The non-resident is not disadvantaged in total tax over twenty years; he is disadvantaged in timing, and the money arrives later. Anyone selling the idea that AfA produces a cash refund for an owner abroad is describing the resident's case.

Living in another EU country: the German tax return and the management of the flat

An owner who lives in Spain, the Netherlands or Austria and lets a flat in Germany has two recurring jobs that are hard to do from a distance: the German tax return and the management of the tenancy. The cost of both is deductible, and both are easier when they are set up at the purchase and not after the first letter from the tax office.

• One return a year. The rental surplus or loss is declared on Anlage V as part of the income tax return for limited taxpayers, filed with the tax office of the district where the flat stands. The statutory deadline is 31 July of the following year, and the end of February of the year after that when a tax adviser files (§ 149 AO).
• File in the loss years too. In the first years of a financed purchase the result is usually a loss. It is not paid out; it is assessed and carried forward under § 10d EStG. A loss that is never declared is never assessed, so the early returns are the ones that pay off later.
• The home country. Whether your country of residence exempts the German rent or credits the German tax is decided by its treaty with Germany and by its own law. Give your adviser at home the German assessment every year.
• Management on the ground. Tenant search, the deposit account, the operating cost statement within twelve months and the arrears process need someone in Germany. A rental manager's fee is a Werbungskosten item, and so is the tax adviser's fee for the return.

For clients who live in the EU, LDP Group coordinates the purchase, the renovation and the handover to rental management, so the property side sits with one firm. The tax side sits with the partner tax firm Helm & Partner, which prepares the annual German return for clients who engage it; clients with their own adviser receive the figures instead. LDP Group itself gives no tax advice. The details are on the pages for tax structuring and rental management.

Two ideas that sound clever and usually are not

• Putting the flat into a GmbH. A property-holding company pays 15.825 percent corporation tax on the rent and can escape trade tax under the extended reduction in § 9 Nr. 1 S. 2 GewStG, and that arithmetic is what the seminars show. What they do not show: the ten-year exemption of § 23 EStG does not exist for a company, every euro taken out is taxed again as a dividend, the transfer into the company itself triggers transfer tax and possibly § 23, and an owner who later leaves Germany holding company shares walks into the exit tax of § 6 AStG, which does not apply to a directly held flat. For a single flat, or three, the company costs more than it saves. It becomes a question at portfolio size, and then it is a question for an adviser, not a page.
• Buying furniture to create deductions. Furniture in a furnished let is deductible over its useful life, but a furnished short-term let is exactly the case in which the tax office questions whether the owner intends a surplus at all. Long-term unfurnished letting carries a presumption that the activity is meant to make a profit; short-term furnished letting does not, and a decade of losses without that presumption can be disallowed in one letter.

Limitations and what we do not know

• We are a property investment firm, not tax advisers. Everything above is checked against the statute as of September 2026 and describes the rules, not a specific return. The marginal rate of 42 percent in the example is illustrative; the tariff brackets move every year.
• The client case figures are estimates from the business case prepared before each purchase, for that client's income and marginal rate. They are not tax assessments, they have not been audited, and LDP Group chose which cases to publish.
• The § 7b conditions (cost cap, basis cap, efficiency standard, application window) are stated as enacted by the Wachstumschancengesetz; the Jahressteuergesetz 2026 draft (August 2026) does not change § 7b.
• Whether the owner's country of residence taxes the German rent again, exempts it, or credits the German tax depends on that country and its treaty with Germany; we do not cover any country's rules here.
• The worked example ignores the solidarity surcharge, church tax (which a non-resident does not pay) and the property tax, and assumes the flat is let for the full year.
• The land share of 20 percent is an assumption for a Leipzig flat; the tax office's spreadsheet may produce a higher share for a specific address, and the difference is worth a valuation before the first return.

What would change this answer

• A change to the AfA rates or to the § 7b conditions; both were last changed by the Wachstumschancengesetz in March 2024 and the 30 September 2029 windows are political dates.
• A change to § 23 EStG; a shortening or abolition of the ten-year exemption for let property is proposed in every coalition negotiation and has never passed.
• A new Bundesfinanzhof decision on the land split or the 15 percent rule, both of which are litigated every year, or the planned § 6f EStG on the land split becoming law.
• A change to § 50 EStG restoring the basic allowance for limited taxpayers, which would move the non-resident's result in the example by several hundred euros a year.
• A change to the arrears thresholds in § 543 BGB, the grace payment in § 569 BGB or the landlord's termination grounds in § 573 BGB, or a further change to the rent brake in § 556d BGB, last extended in July 2025 to the end of 2029.
• A new published client case or a corrected figure in an existing one, which moves the range and the median of the first-year tax effect quoted at the top.

Last reviewed October 3, 2026. Reviewed by Nicholas Runtic and Abdelrahman Maged, co-founders of LDP Group, before publication and at every review date. We review this page every quarter and after every Jahressteuergesetz. If you are reading it more than three months after the date above, check § 7 Abs. 4, § 7b and § 23 EStG before relying on a rate or a date.

Frequently asked questions

Sources

• § 21 EStG, Einkünfte aus Vermietung und Verpachtung (gesetze-im-internet.de)
• § 49 EStG, beschränkt steuerpflichtige Einkünfte, Abs. 1 Nr. 6
• § 50 EStG, Sondervorschriften für beschränkt Steuerpflichtige
• § 1 EStG, Steuerpflicht, Abs. 3 application for non-residents
• § 7 EStG, Absetzung für Abnutzung, Abs. 4 and Abs. 5a
• § 7b EStG, Sonderabschreibung für Mietwohnungsneubau
• § 6 EStG, Bewertung, Abs. 1 Nr. 1a anschaffungsnahe Herstellungskosten
• § 9 EStG, Werbungskosten
• § 10d EStG, Verlustabzug
• § 23 EStG, private Veräußerungsgeschäfte
• § 35c EStG, Steuerermäßigung für energetische Maßnahmen bei zu eigenen Wohnzwecken genutzten Gebäuden
• § 82b EStDV, Behandlung größeren Erhaltungsaufwands bei Wohngebäuden
• BMF letter of 26 January 2026 on repairs, modernisation and anschaffungsnahe Herstellungskosten (copy hosted by IVD)
• § 6 AStG, Besteuerung des Vermögenszuwachses (exit tax on company shares)
• § 9 GewStG, Kürzungen, Nr. 1 S. 2 extended reduction for property companies
• LDP constants file: AfA rates and windows as verified July 2026 (BMWSB, Haufe, IVD)
• § 149 AO, Abgabe der Steuererklärungen (filing deadlines)
• § 543 BGB, außerordentliche fristlose Kündigung (rent arrears thresholds)
• § 569 BGB, Abs. 3 Nr. 2 grace payment after an eviction claim
• § 573 BGB, ordentliche Kündigung des Vermieters (legitimate interest)
• § 573c BGB, Kündigungsfristen (notice periods)
• § 577a BGB, Kündigungsbeschränkung bei Wohnungsumwandlung
• § 558 BGB, Mieterhöhung bis zur ortsüblichen Vergleichsmiete
• ImmoScout24, Räumungsklage: Dauer, Ablauf und Kosten (read 21.09.2026)
• KGK Rechtsanwälte, Wie lange dauert eine Räumungsklage in Deutschland (read 21.09.2026)
• LDP Group client cases: purchase price, rents and estimated first-year tax effect per case