Tax savings (Steuerersparnis) from real estate investments come from deducting property expenses against your ordinary income. For high earners, these savings often exceed rental income itself.
How Real Estate Reduces Your Tax Bill
German tax law allows you to deduct all expenses related to earning rental income:
- AfA (depreciation): 2% of building value annually
- Mortgage interest: Fully deductible
- Operating costs: Management, insurance, repairs, property tax
- Financing costs: Loan origination fees, early repayment penalties
Real Example: €450,000 Property
Annual Income & Expenses:
Rental income:+€21,600
AfA (2% of €360k):−€7,200
Mortgage interest:−€17,820
Other expenses:−€3,600
Net rental income (for tax):−€7,020
Impact on Your Tax Return
Your Tax Situation:
Employment income:€95,000
Rental loss (from above):−€7,020
Taxable income:€87,980
Your marginal tax rate:42%
Annual tax savings:€2,948
Even though you collected €21,600 rent, you paid €2,948 less in income tax
The Cashflow Picture
Tax savings are real money that reduces your effective monthly cost:
- Monthly out-of-pocket cost: €150
- Annual tax refund: €2,948
- Effective monthly cost: €150 − €246 = −€96 (you're ahead!)
Higher Income = Higher Savings
The same €7,020 deduction saves:
• €1,755 at 25% tax rate
• €2,948 at 42% tax rate
• €3,159 at 45% tax rate
This is why real estate is particularly attractive for high earners in Germany.