Introduction

Many people invest in properties because they are safe investments and a source of income, but every income is taxable. Fortunately, the costs incurred in running or furnishing a holiday home are deductible, so always keep receipts and invoices. Each country has its own rules on the taxation of rental properties.

This article will tell you what tax breaks you are entitled to in Germany, where the legal basis for the tax treatment of holiday homes is the Income Tax Act (Einkommensteuergesetz - EStG). 📖 In Germany, tax relief only applies to properties that are located in Germany.

Deduction for Depreciation and Wear & Tear

In Germany, fixed assets worn out during normal use can be deducted from your tax, and a certain amount can be written off each year, but only if you rent the property and do not use it yourself. That is, if it is a business expense.

In many cases, the full purchase value is deductible if the value of the goods purchased does not exceed €800 net. If they do exceed it, you can only deduct it under certain conditions, for example, if you declare it on your tax return for several years. This is known as the "depletion deduction". ☝️

What Happens if You Have Expenses that Exceed €800 Net?

These do not count as expenses as a proportion of your income. The wear and tear of assets is natural, so they can be deducted over the years. A depreciation table is drawn up for this purpose each year.

The rate of depreciation is calculated by dividing the net value of the acquisition (in the case of a business) or the gross value (in the case of a small business) by the number of years indicated in the depreciation table. You must account for depreciation on a monthly basis, i.e., going back months. ☝️

Advertising Costs

Advertising costs are those expenses that are not only for the purpose of operating the holiday home but also for the purpose of generating a specific profit and are relevant for tax purposes. You can deduct them if you rent the holiday home and do not use it yourself.

All costs related to the rental of the holiday home are fully deductible for tax purposes as income-related costs, e.g., cleaning, advertising, publicity. ☝️

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Intention to Make a Profit

You are not entitled to a tax deduction for operating and ancillary costs, depreciation, and interest if you use your holiday home for your personal purposes. If you want to deduct the costs of your holiday home from your tax return, you must be able to demonstrate a clear intention to make a profit. ☝️

Make it clear to the tax office that you intend to make a profit from renting out your property because only then can you deduct the expenses from your tax return. If you rent out the property for at least 75% of the days in a year, this is considered an intention to make a profit, or if your income exceeds your expenses.

Liebelei: No Profit Motive

If you use it or rent it out on fewer days, you must prepare an income projection for the next 30 years of expected income and expenses. ☝️ If there is no profit motive, it is called Liebelei. This applies if your rental income does not exceed your expenses.

Then renting out is considered a self-employment activity, so your expenses and losses cannot be deducted from your tax return. In this case, however, you do not have to pay tax either, as the intention to make a profit can be excluded. ☝️

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Tax Relief for Occasional Renting Out

If you use your holiday home for private purposes more, different tax rules apply. If you want to avoid this, rent out your holiday home for at least 75% of the average rental period applicable to the property. Check with your local tourist office or municipality to find out what the occupancy rate is in different municipalities.

You may need to prepare an income forecast for the next 30 years to make it clear to the tax office that you are generating a rental surplus and therefore qualify for a tax reduction. If you can't prove how much of your holiday home you use for private purposes in a calendar year, the German tax office will assume that you have used at least 50% of the property. Accordingly, you can only claim pro-rata expenses for this period. ☝️

Pros:

✅ Tax deductions

✅ Rental surplus recognition

✅ Avoiding the Liebelei classification

Cons:

❌ Detailed record-keeping

❌ Strict usage limitations

15 Business Expenses You Can Deduct from Your Tax Return:

You can deduct interest on debts, additional costs, and depreciation of the purchase price, operating, agency, administrative, renovation, and maintenance costs when you rent out a property, but only if you can justify this with a receipt or invoice! See the list below for more details. ☝️

✅ Repair, Maintenance & Cleaning Costs: professional repair work, material costs, and cleaning company fees.

✅ Insurance: whether it is against natural disasters or liability or contents insurance, if you keep the receipts, you can claim back the costs.

✅ Incidental Costs & Taxes: such as electricity, water, internet, state and local taxes.

✅ Marketing & Advertising: it doesn't matter whether you advertise your holiday home online or offline, the money you spend on this is fully deductible.

✅ Brokerage Commission: the full amount is deductible.

✅ Office Expenses: if you take care of the management and marketing on your own, you can deduct office expenses such as telephone and internet connection, office supplies, software subscriptions, etc.

✅ Tax Consultancy Fees & Expenses: you should ask your tax adviser to calculate what and how much you can deduct. This way you will not miss anything and you can deduct the consultant's fees.

✅ Furniture & Equipment: keep a receipt for all equipment costs, but remember the €800 direct deduction limit.

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✅ Interest on Loans: if you have already bought the property but have not yet repaid the loan, you can deduct the interest on the loan. If the loan gives rise to taxable income, you can also deduct the interest and the cost on the loan.

✅ Property Tax: payable annually, the value is set by the municipality. It is calculated on the basis of the assessed value of the property and the assessment rate.

✅ Account Management: it is advisable to set up a separate bank account for renting because you can deduct the account management fees charged by the bank.

✅ Vacancy of the Holiday Property: if you can prove that you are not responsible for the vacancy (with renovation works, rent adjustment, increased marketing efforts, etc.), you can also deduct operating costs and expenses, e.g., electricity, property tax, insurance.

✅ Second Housing Tax: you can avoid paying this tax if you rent the property through a real estate agent.

✅ Self-employment or Business: if the renting out is of clear economic benefit and your income reaches €25,000 per year, you are obliged to register as a business and pay additional taxes.

✅ Renting Out via a Booking Portal: in this case, you will automatically have to pay VAT and declare all the income you generate here in your tax return. The relevant costs are also deductible under certain conditions.

Conclusion

Keep a record of all your expenses to see where large deductions are possible when preparing your tax return. You can also use online tools to calculate these. Also I recommend you to keep a record of all invoices and receipts, all important documents, and all canceled payments. Make copies if necessary. ☝️ And do not forget that it is worth using a booking system so you can keep track of your bookings and always have proof of them to hand. This can save you considerable money. ☝️

Frequently Asked Question

❓ What tax deductions can I claim as a landlord in Germany?

As a landlord in Germany, you can deduct various expenses related to your holiday home, including depreciation, advertising, maintenance, insurance, and more. Keep receipts to justify these deductions.

❓ Are there conditions for deducting depreciation on my rental property?

Yes, you can deduct depreciation on assets that wear out, but only if the property is solely for rent. The full purchase value is deductible if it's under €800 net; otherwise, it's spread over several years.

❓ How can I demonstrate a profit motive for tax deductions?

To show a profit motive, rent out your property for at least 75% of the year or ensure income exceeds expenses. If renting fewer days, prepare a 30-year income projection.

❓ What if I can't demonstrate a profit motive for my rental activity?

Without a profit motive, your activity is considered a hobby, and expenses are not deductible. No tax is required, as the profit intention is excluded.

❓ Can I get tax relief if I use my holiday home for private purposes?

Yes, if you occasionally use it privately, rent it out for 75% of the average rental period, and demonstrate a rental surplus with a 30-year income forecast for potential tax reduction.

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