Tax Aspects for Private Landlords – The Complete Guide

Renting out residential property is an attractive way to build wealth and generate regular income. But when it comes to the tax return, many landlords realize: managing rental income is more than just a rental contract and monthly transfers. The tax area is complex—but those who understand it can use significant advantages and save taxes.

This guide is specifically designed for private residential landlords and explains clearly and practically what you need to pay attention to.

1. Private Rental: The Tax Foundation

As soon as you rent out residential space, you generate income from renting and leasing (§ 21 EStG in Germany). This is recorded as part of income tax.

Important for private landlords: As long as you rent out an apartment or house long-term and don't offer hotel-like services (e.g., daily cleaning, breakfast, reception), your activity is not considered a business.

→ The vast majority of residential landlords remain in private rental—often the most pleasant solution tax-wise.

2. What Counts as Income?

Taxable income includes not only the base rent.

Income includes:

• Base rent
• Utility cost advance payments
• Payments for parking spaces, garages, storage rooms
• Fees for rented furniture
• One-time payments (e.g., key money from tenants)

Not considered income:

• Security deposits, as long as they are only held in trust
• Tenant reimbursements for damages that run through cost recovery

Practical example: Tenant pays €900 base rent + €200 utilities = €1,100 monthly income. Utilities must later be reconciled with property management or the tax office.

3. Deductible Expenses: Everything Landlords Can Deduct

The big advantage of rental: All costs caused by the property count as deductible expenses and reduce the tax burden.

3.1 Depreciation (AfA) – The Most Important Tax Item

The building portion of your property can be depreciated over 50 years at typically 2% per year.

(Example: Building portion €300,000 → €6,000 annual AfA)

The land value is not deductible.

3.2 Financing Costs

All loan interest is fully deductible:

• Loan interest
• Commitment interest
• Brokerage commissions
• Notary fees for the loan

Important: Principal repayment is not deductible—it's wealth building.

3.3 Maintenance and Modernization Costs

These items can be claimed immediately:

• Repairs (roof, facade, heating, electrical, bathroom)
• Replacement of defective components
• Minor repairs
• Renovations before or after tenant changes

Manufacturing Cost vs. Maintenance Cost:

• Maintenance cost → Immediately deductible
• Manufacturing cost → Must be depreciated via AfA

Guideline: If the standard of an apartment is significantly improved (e.g., basic standard → upscale standard), it tends to be manufacturing cost.

3.4 Operating Costs / Utilities

Many expenses can be deducted directly:

• Property tax
• Building, liability, contents insurance
• Waste, wastewater, street cleaning
• Property manager and winter services

3.5 Administrative Costs

• Tax consulting
• Software for rental or accounting
• Postage costs, bank fees
• Travel costs to the property (€0.30/km)

3.6 Vacancy & Intent to Rent

Even with a vacant apartment, costs are fully deductible as long as there is a serious intent to rent.

(Documentation: Listings, broker evidence, viewings)

4. Pitfalls Private Landlords Should Watch Out For

4.1 The 66% Limit for Reduced Rent

If rent is below 66% of the local market rent, deductible expenses may only be claimed proportionally.

4.2 Renting to Relatives

Allowed—but:

• Rental contract must be market-standard
• Rent payments must actually occur
• Terms, termination rules, and utility billing as between strangers

4.3 Furnished Rental

Furnishings can be depreciated via AfA for movable goods. Smaller purchases up to €952 gross (GWG) even immediately.

4.4 Energy-Efficient Renovations

Certain measures can be tax-supported:

• Insulation
• Window replacement
• Heating renewal

Tax reduction of 20% distributed over three years possible.

5. Optimally Using Tax Advantages – Common Strategies

5.1 Bundle Major Measures in One Year

If renovation is already planned: Consolidate work in one year → higher deductible expenses → tax burden decreases.

5.2 Use Losses

Losses from rental can be offset against other positive income (e.g., salary).

5.3 Rental & Retirement Planning

Those who plan long-term use the combination of:

• Rental surpluses
• Principal repayment
• AfA

→ to build wealth and retirement provision in a tax-optimized way.

6. Documentation & Deadlines – Essential for Landlords

Deadlines:

• Regular submission deadline: July 31 of the following year
• With tax advisor: Extension until end of February of the year after next

Clean Record Management

You should keep:

• Invoices (digital or paper)
• Payment confirmations
• Rental contracts
• Handover protocols
• Listings / broker evidence (for vacancy)

Digital tools or apps make organization significantly easier and reduce errors.

7. Practical Example: Tax Impact of a Rental Apartment

Income: €900 base rent × 12 = €10,800

Deductible expenses:

• AfA: €6,000
• Interest: €3,200
• Non-transferable property fees: €1,200
• Travel + administration: €300

Total costs: €10,700

→ Taxable: only €100

→ Effective tax burden: minimal

Many landlords pay no or very low taxes on their rental income—because deductible expenses are high.

8. Checklist for Private Landlords

Before the tax return:

• Review rental contract & utility billing
• Calculate AfA correctly
• Record interest & loan costs
• Collect repair & modernization costs
• Review insurance
• Document vacancy
• Sort receipts / archive digitally
• Keep deadlines in mind

Conclusion

Private landlords have numerous opportunities to reduce their tax burden—often more than they realize. The key is knowing the rules and documenting receipts cleanly. Those who proceed systematically or use digital tools can not only make their rental more efficient but also realize significant tax advantages.