If you rent out an apartment or a house, you can deduct many expenses from income tax – especially in the first years after purchasing the property. During this time, you can save taxes by offsetting possible losses against other income. In today’s article, we want to take a closer look at how the taxation of rental income is related to the tax return.
Do you have to pay taxes on rental income?
The taxation of income and the consideration of expenditures is done according to the inflow and outflow principle. This means that they always arise in the year in which the payments are actually credited to your account, so you can only deduct them in the year in which you spent the money. The inflow and outflow principle also states that you must declare the rental income in your tax return when the tenant has actually made a payment.
However, there is an exception: If the regular payments you make at the turn of the year are received by the tenth of January, they are credited to the previous year (provided they economically belong there).
Which rental income must be taxed?
In almost all cases, rental income must be taxed. By definition, these are the rental payments regularly made by the tenant to you, including all ancillary costs. The tax office in Germany does not check where these payments come from. It considers them as income from leasing and renting, which must be declared in the tax return in Annex V. This also applies to the rental of a room in an apartment in the form of subletting via, for example, Airbnb or another platform. If you sublet the apartment only once, the limit of 520 euros applies to you.
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Which rental-related expenses can be claimed in your tax return?
There are several rental-related items that can be deducted for tax purposes from the total rental payments received over the year. These are:
- Ancillary costs,
● Interest on debt,
● Depreciation of the building,
● Maintenance costs,
● Construction costs of the property,
● Acquisition-related costs associated with the purchase,
● Rental of a garage or commercial space.
Taxable rental income vs. ancillary costs
Expenses for ancillary costs are tax-deductible. They naturally reduce the profit since you as a landlord regularly pay water, electricity, and other ongoing ancillary costs, which the tenant passes on to you as a flat rate.
Tax on rental income vs. debt interest
The loan installments paid for the purchase of a rental property cannot be directly claimed for tax purposes. However, the interest on debt is deductible as it is recognized as advertising costs.
Rental tax and depreciation of a building
Over time, buildings lose value. This loss of value is considered for tax purposes as so-called depreciation for wear and tear (AfA). Usually, it is possible to write off 2% of the building’s value over a period of 50 years. The portion of the purchase price attributable to the building and any construction costs are decisive in this.
However, there is a different regulation for older buildings: If it is a property constructed before January 1, 1925, you can take advantage of faster depreciation. In this case, the annual depreciation amounts to 2.5% over a period of 40 years. This regulation applies since 2023 and thus allows for earlier tax relief for owners of historical buildings.
Rental tax refund vs. maintenance costs
Maintenance costs are expenses incurred by renewing existing building parts – for example, when renovating bathrooms or replacing outdated pipes. Such renovation costs can be deducted immediately as advertising costs or – depending on the extent – spread over a period of two to five years.
Starting from 2025, you will also benefit from new tax incentives for energy-efficient renovations. If you invest in measures that increase a building’s energy efficiency – such as replacing old windows, better insulation, or installing a heat pump – you can claim 20% of the costs for tax purposes over three years. These energy-saving measures must meet certain technical requirements and can mean significant relief in the tax return.
Tax refund for rental income compared to construction costs for a property
The construction costs are treated by the tax office as a structural facility that creates something in the property that was not there before and increases the future utility value. Such costs can be written off over about fifty years.
Landlord’s tax refund vs. acquisition-related construction costs
Acquisition-related construction costs arise when you buy a property of your choice and then need to renovate it. The net costs incurred for the renovation in the first three years after the purchase exceed 15% of the original purchase price. In this case, these are acquisition-related construction costs. You cannot deduct these directly and in full, but spread them over the asset’s lifespan.
Tax refund for private landlords vs. renting out commercial spaces or garages
For garages or parking spaces not connected to a residential building, you must pay value-added tax. When renting out commercial spaces, you as a private landlord can choose whether to charge the so-called value-added tax or not necessarily. For example, you can deduct 19% VAT on renovation work invoices or other bills.
Tax relief in connection with rental income
A basic tax allowance applies to rental income, which is granted to every taxpayer in Germany. In 2025, this amounts to €12,084 for single individuals and €24,164 for jointly assessed married couples. Income that exceeds this allowance is subject to income tax. The individual tax rate is based on the total income and ranges from 14% to 45% in 2025.
Important for landlords: If you rent out an apartment or house at a rental price that is less than 66% of the local comparable rent, you may no longer be able to fully claim all advertising costs for tax purposes. In such cases, the rental relationship is considered part-payment, which means that only a proportional cost deduction is possible. To obtain the full deduction for advertising costs, the rent should be at least two-thirds of the local market rent.
Taxes on rental income – Summary
In the above article, we explained the questions related to the taxation of rental income and claiming a tax refund for this income. This is quite possible, but to avoid getting lost in accounting and to calculate the final refund amount well, it would be good to use a suitable tool. This can be, for example, a program for calculating German tax. We recommend Taxando, a secure, easy-to-use, and fast application for your mobile.
Maciej Szewczyk
He gained experience as a consultant on IT projects for many international companies. In 2017, he founded the startup taxando GmbH, where he developed the innovative tax app Taxando, which simplifies the filing of annual tax returns.
Maciej Szewczyk combines technological expertise with in-depth knowledge of tax regulations, making him an expert in his field. In his private life, he is a happy husband and father and lives with his family in Berlin.
