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Save Taxes on Property With AfA and Advertising Costs: What Investors Need to Know
How AfA depreciation (2%, 2.5% or 3%) and deductible costs such as mortgage interest and repairs cut the tax on German rental income in 2026.
Table of Contents
How AfA Depreciation Reduces Your Taxable Income
AfA (Absetzung für Abnutzung) is one of the most reliable ways to reduce taxable income from rental earnings in Germany. AfA allows you to write off the building value over 50 years at 2% per year for residential buildings completed between 1925 and 2022. Buildings completed from 2023 onward are depreciated at 3% a year, buildings completed before 1925 at 2.5% (§ 7(4) EStG). For example, if you buy an apartment for EUR 300,000 with EUR 240,000 attributed to the building (assumed), you can deduct EUR 4,800 annually as depreciation.
This yearly deduction lowers your taxable rental income, saving you money on income tax. Remember, the land portion is not depreciable, so a realistic split of land and building value in the purchase contract matters. The Finance Ministry's purchase price allocation tool lets you and the tax office check whether a split is plausible.
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Typical AfA rate: 2% per year over 50 years for residential buildings completed 1925 to 2022
Building value example: EUR 240,000 on a EUR 300,000 purchase
Annual depreciation deduction: EUR 4,800
AfA Calculation Example
Purchase price (assumption): EUR 300,000
Land value (non-depreciable, assumption): EUR 60,000
Building value: EUR 240,000
Annual AfA: 2% of EUR 240,000 = EUR 4,800
If your rental income is EUR 12,000 per year, taxable income before other expenses reduces to EUR 7,200 (EUR 12,000 minus EUR 4,800). You can run your own figures in the AfA calculator.
Maximizing Advertising Costs (Werbungskosten) for Tax Savings
Advertising costs are expenses caused by renting out your property that you can deduct from rental income (§ 9 EStG). These include maintenance, property management fees, mortgage interest, utilities you pay and do not pass on to the tenant, and even travel costs to the property for inspections.
Keep receipts for everything you claim, because the tax office can ask you to prove each expense. For a structured list of every cost category with its legal basis, see which costs a landlord in Germany can deduct.
Mortgage interest payments (not principal) are deductible
Property repairs and maintenance expenses qualify
Property management fees and letting-agent fees for finding a tenant count as advertising costs
Travel expenses for property-related visits can be deducted
Common Mistakes to Avoid
Confusing renovation costs that increase property value with repairs; only repairs are deductible immediately.
Failing to separate principal mortgage payments from interest; only interest is deductible.
Neglecting to claim small recurring costs like insurance or property tax (Grundsteuer).
Current Legal Framework and Tax Rates Affecting Property Investors
In 2026, the German income tax rate on rental income depends on your overall income, ranging from 14% to 45% (§ 32a EStG). AfA and advertising costs help reduce this taxable base. Additionally, the Grunderwerbsteuer (property transfer tax) varies by federal state between 3.5% and 6.5%, impacting your acquisition costs significantly.
To optimize tax liabilities, consider the Spekulationsfrist: if more than 10 years pass between purchase and sale, the gain on a property sale is tax-free. Within the 10 years, a sale is tax-free only if you lived in the property yourself, for example in the year of sale and the two years before (§ 23 EStG).
Income tax rates on rental income: 14% to 45%
Grunderwerbsteuer varies by state, from 3.5% in Bavaria to 6.5% in four states
Spekulationsfrist (10 years) for capital gains tax exemption
The Mietpreisbremse caps the rent for new leases in designated areas, affecting rental yields
Impact of Ancillary Costs on Tax Optimization
Notary and land registry fees for the purchase, broker fees and property transfer tax increase your acquisition costs but are not immediately deductible. They are split between land and building in the same ratio as the purchase price, and only the building share is added to the AfA base. Notary and land registry fees for registering the mortgage (Grundschuld) are financing costs and are deductible right away.
Use the closing costs calculator to estimate these expenses.
Avoid These Pitfalls When Declaring AfA and Advertising Costs
A frequent error is misclassifying renovation expenses as immediate deductions when they should be capitalized and depreciated. For instance, an extension that adds new living space is a capital cost. Within three years of purchase, renovation and modernization spending above 15% of the building's acquisition cost (net of VAT) is capitalized as well (§ 6(1) no. 1a EStG).
Another mistake is forgetting that later capital improvements are added to the AfA base. Refinancing, on the other hand, has no effect on AfA.
Only repair costs are fully deductible in the year incurred
Document and justify all advertising costs meticulously
Adjust the AfA base only for later acquisition or construction costs, not for changes in market value
Keep detailed records to avoid disputes with tax authorities
Tools to Calculate Your Rental Yield and Return on Investment
The rental yield calculator helps you estimate gross and net yields after costs.
Use the ROI calculator to see your overall investment performance factoring in depreciation and expenses. Also, the mortgage calculator is useful to understand the interest component that you can deduct as advertising costs.
Frequently Asked Questions
What costs can I include as advertising costs for my rental property?
Advertising costs include expenses directly related to renting your property such as mortgage interest, maintenance and repair costs, property management fees, insurance, and travel expenses for property inspections. Keep detailed receipts and separate principal mortgage repayments from interest, as only interest is deductible.
How does AfA depreciation work for properties built before 1925?
For buildings completed before 1925, the AfA rate is 2.5%, so you depreciate the building value over 40 years instead of 50.
Can I deduct purchase-related costs such as Grunderwerbsteuer immediately?
No. Grunderwerbsteuer and the notary and land registry fees for the purchase are acquisition costs. Their building share is depreciated with the building; the land share is not depreciable.
How does the Spekulationsfrist affect taxation when selling a property?
If you sell a property within 10 years of purchase and it was rented out during that period, the capital gain is taxable. After 10 years, the gain on the sale is tax-free. This rule rewards long-term holding.
What are common mistakes to avoid when claiming AfA and advertising costs?
Common mistakes include misclassifying renovations as repairs, failing to separate mortgage principal from interest, inadequate documentation of expenses, and forgetting to add later capital improvements to the depreciation base. These errors can lead to back taxes and interest.
Calculate your potential tax savings and rental yields using Investbud's calculators: rental yield calculator, ROI calculator, and mortgage calculator.
This article is not tax, legal or investment advice.
