Taxation of rental income in Germany is part of the German income tax system. Income from renting and leasing is one of the seven categories of income defined by the German Income Tax Act (Einkommensteuergesetz, EStG). It covers income from renting land, buildings and parts of buildings, but also includes certain other forms of leasing and licensing.
Germany taxes net rental income rather than gross rent. Expenses incurred in earning the income, including financing costs, maintenance and depreciation, may be deducted from rental revenue.
Tax treatment For privately held rental property, taxable income is calculated as rental revenue minus deductible income-related expenses.
The statutory category extends beyond conventional property rental. It also covers income from leasing certain groups of movable assets and from temporarily granting the use of certain rights. Income that belongs to another category, such as business income, is taxed under that category instead.
Deductible expenses Expenses connected with earning rental income are generally deductible. These may include interest on loans used to finance the property, property-related taxes and charges, insurance costs and depreciation.
Repair and maintenance costs may usually be deducted in the year in which they are incurred. Other expenditure is treated as part of the cost of acquiring or constructing the building and is deducted over time through depreciation. This may include substantial renovation or modernisation costs incurred shortly after a property is purchased when the statutory conditions are met.
Depreciation The cost attributable to a rental building may be deducted over time through depreciation (Absetzung für Abnutzung, AfA). Land itself is not depreciated.
For most buildings, the annual straight-line depreciation rate depends on the date of completion. The standard rate is 3% for buildings completed after 2022, 2% for those completed between 1925 and 2022, and 2.5% for buildings completed before 1925.
Certain newly constructed residential buildings can instead use declining-balance depreciation at 5% of the remaining value each year. The provision applies to qualifying construction projects and acquisitions made within the period specified by the Income Tax Act.
Additional special depreciation is available for some newly constructed rental housing under section 7b of the Act.
Below-market rentals Special rules apply when residential property is rented for less than the local market rent (ortsübliche Marktmiete).
If the rent is at least 66% of the local market rent and the property is rented on a long-term basis, the letting is treated as fully paid and the related expenses are generally deductible in full.
If the rent is at least 50% but below 66% of the local market rent, the treatment depends on whether the rental is expected to generate an overall surplus. If the forecast is positive, the expenses are generally deductible in full. If it is negative, the letting is divided into paid and unpaid portions.
If the rent is below 50% of the local market rent, the letting is divided into paid and unpaid portions, limiting the share of expenses that may be deducted.
Holiday and short-term rentals Holiday homes and other short-term rentals can be subject to additional rules, particularly when the owner also uses the property privately.
For a holiday home rented exclusively to guests and otherwise kept available for rental, the Federal Fiscal Court generally presumes an intention to generate income if its occupancy is not substantially below that of comparable properties in the area. In a 2025 judgment, the court confirmed that a shortfall of at least 25% is considered substantial and that occupancy should generally be compared over a continuous period of three to five years.
If the property is also used privately, expenses may have to be apportioned between rental and private-use periods.
International taxation German residents are generally subject to income tax on their worldwide income. Rental income from property outside Germany may therefore be taxable in Germany, although an applicable double taxation agreement may allocate taxing rights to the country in which the property is located.
Non-residents may be liable for German income tax on rental income from property situated in Germany. Such income is included among German-source income under section 49 of the Income Tax Act.
Tax return Rental income is reported as part of the annual German tax return. Income and expenses relating to a rented house, apartment or other developed property are generally reported on Anlage V.
Holiday homes and other short-term rentals also require Anlage V-FeWo. Other forms of rental and leasing income, including certain income from undeveloped land, subletting and rights, are reported separately within the rental-income schedules.
See also
Income tax in Germany Taxation in Germany Tax return in Germany
References