How is rental income taxed in Germany?

Rental income in Germany (Einkünfte aus Vermietung und Verpachtung) is taxed as ordinary income at your personal marginal income tax rate, not at the flat Abgeltungsteuer rate. You declare it in Anlage V of your Steuererklärung.

Allowable deductions against rental income include: mortgage interest, property management fees, maintenance and repair costs, insurance premiums, property taxes (Grundsteuer), administrative costs, depreciation (Abschreibung / AfA), and advertising costs to find tenants. Depreciation is generally 2% per year of the building's purchase value (land value excluded) for properties built before 1 January 1925; for newer properties the rate is also 2% per year under standard rules, though an accelerated 5% per year was introduced for certain new builds from 2023 to encourage construction.

If rental expenses exceed rental income, the resulting loss can typically offset other income (salary, business income) in the same year, reducing your overall tax liability. This is the German equivalent of negative gearing. However, if the property is rented at below-market rates (e.g. to relatives at a discount), deductions may be restricted proportionally.