Last Updated on August 26, 2024 by Kristina Valcheva
Navigating the complexities of rental income tax in Germany can feel like stepping into a maze, especially for newcomers to the country’s property market.
Beyond just numbers and paperwork, this article delves into the nuances of rental income tax in Germany.
It unravels the rules that dictate how much you owe, when to pay, and most importantly, how to optimize your tax situation within the legal framework.
In this guide:
- What is considered rental income in Germany?
- How is rental income taxed?
- What expenses can I deduct on my German tax return?
- What is the tax rate on rental income in Germany?
- When do you need to pay rental income tax in Germany?
- What is the compassionate allowance (Härteausgleich)?
- What are the minimum limits for sublets and short-term rentals (like Airbnb)?
- Who needs a Tax ID and how to get one?
- Who are Property Tax International and how can they help me?
- Why choose Property Tax International over a local accountant?
What is considered rental income in Germany?
Rental income in Germany is classified as “income from renting and leasing” (Einkünfte aus Vermietung und Verpachtung), and is taxed according to your personal tax rate (Steuersatz).
According to §21 of the German Income Tax Act (Einkommensteuergesetz, EStG), rental income covers:
- Leasing and renting of immovable assets: This includes properties like buildings, land, ships, and property-related rights, such as hereditary building rights. It also applies to subletting houses, apartments, rooms, and vacation properties.
- Leasing and renting of movable business assets: This refers to items like machinery, vehicles, tools, and other business-related equipment.
- Temporary licensing of copyrights: Income earned from the temporary transfer of rights related to literary, artistic, and commercial works.
- Sale of interest receivables from leasing and renting (Zinsforderungen): Revenue generated from selling the right to collect rental interest payments.
- Tenant security deposits (Kautionen): These aren’t considered rental income unless the landlord uses them.
How is rental income taxed?
In Germany, income from renting and leasing is one of seven categories subject to income tax, treated similarly to wages from traditional jobs or self-employment.
You’ll report this income on Form V of your German income tax return.
Rental income is categorized as “surplus income” (Überschusseinkünfte) under German tax law.
This means only the income left after deducting expenses, such as income-related costs (Werbungskosten), is taxable.
This includes not just the net rent (Kaltmiete) or lease (Pacht) but also any utility costs (Nebenkosten) paid by tenants.
Since you can’t keep utility payments, you can deduct them as income-related expenses on your tax return.
Here’s a simple breakdown of how your rent affects your tax deductions:
- If you charge less than 50% of the average local rent: You can only deduct a small part of your expenses on your taxes.
- If you charge more than 66% of the average local rent: You can deduct all your expenses because it shows you’re definitely trying to make a profit.
- If you charge between 50% and 66% of the average local rent: You need to prove with a special calculation that you’re really trying to make a profit.
For tax purposes, you pay tax in the year you actually get the rent money.
If you get rent just before or after the new year, it’s taxed in the year it’s for.
For instance, if you get a rent payment for January 2024 on 28 December 2023, it will be considered income for 2024.
What expenses can I deduct on my German tax return?
You can deduct a variety of costs associated with renting as income-related expenses (Werbungskosten).
This includes expenses like:
- purchase costs
- depreciation
- ongoing running costs (such as utilities)
- interest on loans
- renovation expenses, and more.
What is the tax rate on rental income in Germany?
Every taxpayer receives an annual basic tax-free allowance (steuerlicher Grundfreibetrag) to cover essential living expenses, which also applies to private landlords.
Only the income that exceeds this allowance is taxable. Starting January 1, 2024, the allowance will rise by €696, increasing from €10,908 in 2023 to €11,604.
Income above this threshold is taxable, beginning at a base rate of 14%.
For married couples who file jointly, the basic allowance is doubled, reaching €23,208 in 2024.
The tax you pay on rental income depends on your individual tax rate (Steuersatz).
This rate is applied to your taxable income (zu versteuerndes Einkommen), which is your total income minus any deductible costs.
Germany has four tax brackets.
As mentioned above, for 2024, the first bracket allows a tax-free income up to €11,604 for individuals.
The second bracket taxes income from €11,604 to €66,760 with rates ranging from 14% to 42%.
The third bracket applies to incomes from €62,810 to €277,825, taxed at 42%, while the fourth bracket covers incomes over €277,825, taxed at 45%.
For example, if you earn €25,000 in the second bracket, your tax rate is around 29%.
However, a foreigner earning €40,000 might face an estimated tax rate of 36%.
When do you need to pay rental income tax in Germany?
You must report rental income on your annual German tax return for the year you received it and the tax brackets we discussed above are valid.
The German tax year runs from January to December.
The German tax deadline for 2023, is 2 September 2024 (without a tax advisor) and 31 May 2025 (with a tax advisor).
What is the compassionate allowance (Härteausgleich)?
However, if you’re an employee, pensioner, or retiree, you might qualify for a “compassionate allowance” (Härteausgleich) if your rental income is low.
You can earn up to €410 in additional income per year without paying tax.
If your income is between €410 and €820 euros, it’s taxed at a lower rate. Anything over €820 is taxed fully. For instance, if you make 620 euros from renting, €200 is tax-free, and you’ll only be taxed on the remaining €420.
If you and your spouse are filing together, your combined additional income is considered, but the 420-euro exemption limit isn’t doubled.
Remember: if your untaxed additional income exceeds €410 per year, you need to file tax return in Germany.
What are the minimum limits for sublets and short-term rentals (like Airbnb)?
If you temporarily rent out parts of your home, you have a higher tax-free limit of €520 per year.
This applies whether you own the property or rent it and are subletting parts of it.
You won’t pay taxes on rental income up to €520 per year.
However, if you earn more than this amount, you’ll be taxed on the total income.
As we already discussed, you can also deduct expenses related to renting, such as fees for the rental platform or furniture bought for rental use.
Who needs a Tax ID and how to get one?
Everyone living in Germany gets a tax identification number (Steueridentifikationsnummer) to ensure proper tax processing.
This 11-digit number is needed to file tax return in Germany and must be included in all tax-related documents.
If you’re a foreign resident, you don’t need to apply separately for a tax ID.
You’ll receive it automatically by mail within 2-4 weeks after you register your address.
You can find your tax ID in:
- Your income tax assessment (Einkommensteuerbescheid)
- Your payroll tax certificate (Lohnsteuerbescheinigung)
- The information letter from the tax office (Finanzamt)
If you lose or forget your tax ID, you can request a replacement from the BZSt.
Who are Property Tax International and how can they help me?
As part of CluneTech (formerly Taxback Group), Property Tax International brings over 25 years of expertise in international property tax and a team of 1,500 professionals across more than 20 countries.
If you are a foreigner who owns rental property in Germany, we’re here to make managing your tax obligations easy.
Navigating rental income tax in Germany can be overwhelming, especially for non-residents—but don’t worry, we’ve got you covered!
Our dedicated team specializes in German property tax returns and will guide you through every step, ensuring you stay compliant with the German tax authorities and handle all your tax matters with ease.
Why choose Property Tax International over a local accountant?
Here’s why our clients with German real estate prefer us:
- Better Value: Our services are more affordable than local accountants.
- One-Stop Shop: File taxes across multiple jurisdictions online with us—no need for separate services.
- Tax Specialists: We expertly handle German rental income tax, ensuring you get every available relief and accurately determine your residency status.
- No Language Barrier: We deal with German tax authorities for you.
- Global Expertise: With offices worldwide, we have deep local knowledge to help maximize your investment.