Tax Tips for Real Estate Investors: AfA and Deductions

If you rent out your property, the German tax office (Finanzamt) becomes your silent partner – in a good way. You can deduct almost all costs associated with the property from your rental income, effectively lowering your tax bill. The most powerful tool in your arsenal is called 'AfA' (Absetzung für Abnutzung).

1. What is AfA (Depreciation)?

You can depreciate the building value (not the land value!) over time. For most residential buildings, you can deduct 2% (buildings built before 1925 usually 2.5%) of the building's cost from your taxes every year for 50 years. Newly built properties often have even higher depreciation rates (Sonder-AfA) to encourage construction.

2. Other Deductible Costs (Werbungskosten)

It's not just depreciation. You can also deduct mortgage interest (but not the principal repayment), property management fees, repair costs, and even travel expenses when you visit your property to check on things. Always keep every single receipt!