Tax · Glossary

Income TaxEinkommensteuer

How rental income and deductions affect your taxes

4 min read·Updated December 2024

Income tax (Einkommensteuer) in Germany is a progressive tax system where your rate increases with income. Understanding how rental properties affect your income tax is crucial for maximizing returns.

How Germany's Income Tax Works

Germany uses a progressive tax system with rates ranging from 14% to 45%:

  • 0-12,084€: Tax-free (Grundfreibetrag)
  • 12,085-68,429€: 14% to 42% (progressive)
  • 68,430-277,825€: 42% flat
  • 277,826€+: 45% (Reichensteuer)

How Rental Properties Affect Your Income Tax

Rental income is classified as "income from rental and leasing" (Einkünfte aus Vermietung und Verpachtung) and is added to your total taxable income. However, you can deduct all expenses related to earning that rental income.

Real Example

Income Tax with Rental Property:

Salary income:€95,000
Rental income (gross):+€21,600
Total income before deductions:€116,600
Less: Mortgage interest:-€18,000
Less: AfA (depreciation, pre-2023 building at 2%):-€8,000
Less: Other expenses:-€3,600
Taxable income:€87,000

Result: Your taxable income decreased by €8,000 despite receiving rental income! For a post-2022 building (3% AfA), the deduction would be €12,000, reducing taxable income even further.

Key Insight

The beauty of German real estate taxation: You can receive rental income while actually lowering your overall tax burden through deductions. This is especially powerful in the 42% tax bracket.

Calculate your income tax impact with a real property

Related Terms

Marginal Tax Rate(Grenzsteuersatz)

Your marginal tax rate is the percentage of tax you pay on your next euro of income. In Germany, it ranges from 14% to 45%. This rate determines your tax savings from property deductions.

Tax Savings(Steuerersparnis)

Tax savings from real estate come from deducting property expenses (interest, depreciation, costs) from your taxable income, reducing the amount of income tax you pay.

Deductible Expenses(Werbungskosten)

Werbungskosten are expenses related to earning rental income that you can deduct from your taxable income. This includes mortgage interest, repairs, property management fees, insurance, and more.

Planning a purchase?

Buying in Germany adds roughly 7% to 12% on top of the purchase price.

Transfer tax

3.5% to 6.5% of the price, set by the state.

Notary & registry

About 1.5% to 2%, fixed by law (GNotKG).

Agent commission

Usually around 3.57% as the buyer's share.

Run your full numbers How buying works here

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Income Tax (Einkommensteuer) | Financemate Glossary