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Tax Tips for Real Estate Investors: AfA and Deductions
Which costs a landlord in Germany can deduct from rental income: interest, AfA, repairs and the 15% rule, Hausgeld, travel and more, each with its legal basis.
Table of Contents
A landlord in Germany pays income tax only on the surplus of rent over expenses. Every cost caused by letting the property counts as Werbungskosten and is deducted from the rental income (§ 9 EStG). Most costs come off in the year you pay them; the building is written off over time through depreciation (AfA). The table lists each category with its legal basis. How to calculate the AfA itself, with rates and an example, is covered in our guide to saving taxes with AfA and deductible costs.
Deductible costs at a glance
Cost | How it is deducted | Legal basis |
|---|---|---|
Mortgage interest | In the year paid | § 9(1) sentence 3 no. 1 EStG |
Loan fees, notary and land registry costs for the Grundschuld | In the year paid, like interest | EStH H 21.2 |
Market-rate Disagio (discount on the loan) | In the year paid | § 11(2) sentence 4 EStG |
Prepayment penalty, if the property stays rented | In the year paid | EStH H 21.2 |
Depreciation of the building (AfA) | 2%, 2.5% or 3% a year | § 9(1) sentence 3 no. 7, § 7(4) EStG |
Repairs and maintenance | In the year paid, or spread over 2 to 5 years | § 11(2) EStG, § 82b EStDV |
Renovation in the first 3 years above 15% of the building cost | Added to the AfA base | § 6(1) no. 1a EStG |
Property tax (Grundsteuer) and building insurance | In the year paid | § 9(1) sentence 3 no. 2 EStG |
Hausgeld: management fee and operating costs not passed on | In the year paid | § 9(1) EStG |
Hausgeld share for the maintenance reserve | Only when the owners' association spends it | BFH IX R 19/24 |
Property manager, letting agent, tenant ads | In the year paid | § 9(1) EStG |
Travel to the property by car | €0.30 per km driven | § 9(3) with (1) sentence 3 no. 4a EStG, § 5 BRKG |
Furniture and appliances up to €800 net each | In full in the year bought | § 9(1) sentence 3 no. 7, § 6(2) EStG |
Fitted kitchen | Depreciated over 10 years | BFH IX R 14/15 |
Sources: § 6 EStG, § 7, § 11, § 82b EStDV, EStH 2024 H 21.2, BFH IX R 19/24, BFH IX R 14/15, § 5 BRKG.
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Interest and financing costs
Interest is usually the largest deduction in the first years of a financed purchase, because an annuity loan pays mostly interest at the start. The repayment of principal is never deductible. Loan set-up costs count as interest: the notary and land registry fees for the Grundschuld and a market-rate Disagio. A prepayment penalty is deductible too if the flat stays rented.
Repairs versus improvements
Replacing parts, fittings or installations that already exist is normally a repair (Erhaltungsaufwand) and deductible in the year you pay (R 21.1 EStR). Large repair bills on a mainly residential building can be spread evenly over two to five years, which helps if your income varies.
Costs that add something new, such as an extension or a loft conversion, are capital costs and go into the AfA base. One rule applies right after a purchase: if renovation and modernization in the first three years after purchase cost more than 15% of the building's acquisition cost (excluding VAT), all of it is treated as acquisition cost and depreciated, even work that would otherwise count as a repair. Annual routine maintenance is excluded from this test.
Running costs and the Hausgeld
Grundsteuer, building insurance and the costs you cannot pass on to the tenant are deductible. In a condominium, the monthly Hausgeld mixes several items. The part for administration and non-recharged operating costs is deductible when paid. The part that goes into the maintenance reserve (Erhaltungsrücklage) is deductible only when the owners' association actually spends it on maintenance, as the Federal Fiscal Court confirmed in January 2025. The annual Hausgeld statement shows the split. More on the term in our glossary entry Hausgeld.
What you cannot deduct
Principal repayments on the loan
The purchase price and purchase costs (transfer tax, notary for the purchase contract, broker): these enter the AfA base for the building share, and the land share is not depreciable at all
Payments into the maintenance reserve until they are spent
Costs for any part of the property you use yourself
If you let a flat for less than 50% of the local market rent, the letting is split into a paid and an unpaid part, and only the share of costs for the paid part is deductible. At 66% of the local rent or more, a long-term letting counts as fully paid (§ 21(2) EStG). This matters when you rent to relatives.
Example: one year of rental income
All figures are assumptions for a rented flat completed in 1998.
Item | Amount |
|---|---|
Rent received | €12,000 |
Mortgage interest | minus €7,000 |
AfA (2% of €240,000 building share) | minus €4,800 |
Grundsteuer and insurance | minus €600 |
Hausgeld without reserve share | minus €900 |
Repairs | minus €1,200 |
Result from letting | minus €2,500 |
The negative result is part of your total income and reduces the tax on your salary or other income in the same year (§ 2(3) EStG). Run your own numbers with the AfA calculator and the cash flow calculator.
Frequently asked questions
When does the deduction for depreciation start?
With the month in which possession, benefits and burdens pass to you, usually the handover date in the purchase contract. In the year of purchase you get one twelfth of the annual AfA for each month from that month on (§ 7(1) sentence 4 EStG).
Do I need receipts for every deduction?
Yes. The tax office can ask you to prove each expense. Keep invoices, loan statements, the Hausgeld statement and a trip log.
How is the 15% limit calculated?
It compares renovation costs in the first three years, excluding VAT, with the acquisition cost of the building alone, not the full purchase price. With a building share of €240,000, the limit is €36,000.
This article is not tax, legal or investment advice.
