Tax on German Rental Property for Expats: What Actually Reduces It

Four levers that are in the statute, one worked example for a resident and a non-resident on the same flat, and the two ideas that sound clever and are not.

Quick answer

Four levers, no company needed: building depreciation on the full acquisition cost, every euro of interest and running cost as Werbungskosten, repairs timed around the 15 percent rule, and a sale after ten years. Non-residents get the same deductions, but no offset against salary abroad.

How Germany taxes the rent in the first place

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.

Residents of an EU or EEA country whose income is at least 90 percent German-taxable can elect unlimited liability under § 1 Abs. 3 EStG and recover the allowance; for someone with a salary in Amsterdam or Vienna and one flat in Leipzig that test fails, 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 on the right basis, at the right rate

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.

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 a 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.

Lever 3: repairs, 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.

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, 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.

Year one, rounded to the nearest ten euros
Line	Amount	Rule
Cold rent, 12 x €1,150	€13,800	§ 21 EStG
Loan interest, 4.0% on €240,000	€9,600	§ 9 EStG
AfA: 2% on the building share of €444,280 x 80%	€7,110	§ 7 Abs. 4 EStG
Non-recoverable Hausgeld, management, bank, adviser	€1,400	§ 9 EStG
Taxable result	minus €4,310	§ 2 Abs. 2 EStG
Owner living in Germany, marginal rate 42%: tax saved against salary	about €1,810	loss offset in the same year
Owner living abroad with no other German income: tax	€0, loss of €4,310 carried forward	§ 50 Abs. 1 EStG, § 10d EStG
Pre-tax cash flow before repayment, both owners	€13,800 minus €9,600 minus €1,400 = €2,800	no tax rule, arithmetic

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.

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 § 7b conditions (cost cap, basis cap, efficiency standard, application window) are stated as enacted by the Wachstumschancengesetz; we have not verified whether a further amendment is pending in the 2026 budget process.
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.
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.

Last reviewed September 10, 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

Do I pay German tax on rent from a German flat if I live abroad?

Yes. Rent from German property is German-source income under § 49 Abs. 1 Nr. 6 EStG whatever your residence, filed once a year on Anlage V with the tax office for the district where the flat stands. The basic tax-free allowance is not available to a non-resident, so the surplus is taxed from the first euro, but the deductions are the same as for a resident.

What is the AfA rate for a rented flat in Germany?

Under § 7 Abs. 4 EStG, 2 percent a year for buildings completed between 1925 and 2022, 2.5 percent for older buildings, 3 percent for buildings completed from 2023 onward. New builds started between October 2023 and September 2029 can take 5 percent declining balance under § 7 Abs. 5a, and qualifying new rental flats add a 5 percent special depreciation for four years under § 7b. The rate applies to the building share of the total acquisition cost including transfer tax, notary and agent fee, never to the land.

Can a non-resident offset a German rental loss against salary?

Not against a foreign salary, because Germany does not see it. The loss is carried forward under § 10d EStG and set against the flat's own future surplus. A resident with German salary offsets the loss in the same year at the marginal rate. Over the life of the investment the total tax is similar; the timing is not.

What is the 15 percent rule for renovation costs?

Under § 6 Abs. 1 Nr. 1a EStG, if net repair and modernisation costs within three years of taking possession exceed 15 percent of the building's acquisition cost, all of them become acquisition cost and are depreciated at the AfA rate instead of being deducted in full. Decorative work counts. It is a cliff: one euro over the threshold changes the treatment of the entire amount.

Does depreciation reduce the tax on a later sale?

It increases it if the sale is within ten years. § 23 Abs. 3 S. 4 EStG computes the gain from the acquisition cost reduced by the AfA taken, so the depreciation deducted from rent is added back into the gain. After ten years the gain is exempt for a privately held flat and the AfA is a permanent saving.

Is a GmbH better for holding one rental flat in Germany?

Usually not. The company loses the ten-year exemption of § 23 EStG, every distribution is taxed again, moving the flat in costs transfer tax, and an owner who later leaves Germany with company shares falls under the exit tax of § 6 AStG that a directly held flat avoids. The 15.825 percent corporation tax rate only wins at portfolio size with long retention and reinvestment.

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