What are the tax benefits of buying rental property in Germany compared to other investments?

• Rental property: You can deduct mortgage interest, depreciation (AfA), maintenance costs, and other expenses from rental income.
• Stocks/ETFs: No expense deductions: only a €1,000 annual tax-free allowance; profits taxed at 25% capital gains tax (plus solidarity surcharge and church tax).
• Private pensions: Contributions may be tax-deductible; payouts taxed in retirement depending on product type.

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Mortgage interest deduction
If you finance your rental property, the interest portion of your mortgage payments is deductible from your rental income.

Depreciation (AfA) Residential property built after 1924 and completed before January 1, 2023 can be depreciated at 2% per year over 50 years. Older properties (built before 1925) can be depreciated at 2.5% over 40 years. For new residential buildings completed after December 31, 2022, the rate is 3% per year (introduced by the Annual Tax Act 2022 / JStG 2022, §7(4) EStG). Example: €300,000 building value at 2% → €6,000/year deduction; at 3% → €9,000/year.

Expense deductions
Maintenance, repairs, property management fees, insurance, and property tax (Grundsteuer) are deductible.

Loss offset
If deductions exceed rental income, the loss can offset your other taxable income: reducing your overall tax bill.

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Stocks and ETFs

• 25% capital gains tax (Abgeltungsteuer) on dividends and realised gains, plus solidarity surcharge (5.5% of tax) and church tax (if applicable).
• No deduction for investment-related expenses, except for a €1,000 allowance (Sparer-Pauschbetrag).
• Important: Equity ETFs benefit from a 30% Teilfreistellung (partial exemption) under §20 Investmentsteuergesetz (InvStG). This means only 70% of distributions and gains from equity ETFs are subject to tax. Effectively, the tax rate on equity ETF gains is ~17.5% rather than 25% — a meaningful advantage that is often overlooked when comparing ETFs to property.

Private pensions

• Riester and Rürup contributions may be tax-deductible up to annual limits.
• Payouts taxed in retirement (often at a lower rate than during working years).

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Rental property (Berlin, €400k)

• Rental income: €15,600/year
• Mortgage interest: €6,000/year (deductible)
• Depreciation: €6,000/year
• Taxable rental income: €3,600/year → taxed at personal rate

Equity ETFs (€400k)

• 4% annual return: €16,000/year
• Tax-free allowance: €1,000
• Amount after allowance: €15,000/year
• After 30% Teilfreistellung: €10,500 effectively taxable
• Tax at 26.375% (incl. solidarity surcharge) ≈ €2,769 tax

Use our Property Investment Calculator and Investment Tax Calculator to compare your personal scenario.

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• Overestimating rental income by ignoring vacancies or non-paying tenants.
• Forgetting that selling property within 10 years can trigger capital gains tax.
• Not tracking all deductible expenses for rental property.
• Assuming ETF taxation is always worse: depends on market performance and holding period.

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1. Define your investment time horizon: tax benefits differ short-term vs long-term.
2. Calculate after-tax ROI for both property and alternative investments.
3. Consider diversification: combining real estate and financial investments can reduce overall risk.
4. Speak with a tax advisor experienced in expat taxation.

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⚠️ IMPORTANT LEGAL DISCLAIMER:

This content is for educational and informational purposes only and does not constitute financial, tax, legal, or investment advice. You should not rely on this information as a substitute for, nor does it replace, professional financial or tax advice. Always consult with qualified professionals (tax advisors, financial planners, lawyers) before making any financial decisions or taking any actions based on this information.

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Disclaimer: This is general information and may differ for individual cases. Learn more about financial planning with Financemate in a discovery call. Always confirm current rates and rules with a qualified advisor before making investment decisions.