Betongold:
An Investment Case for High Earners in Germany

If you're earning €90,000+ in Germany, you're handing over 42-45% of every additional euro to the tax office. That's painful. But here's what most high earners don't realize: Germany's tax code has a built-in mechanism that lets you convert those tax payments into real estate equity instead.

This isn't about dodging taxes or complicated schemes. It's about understanding how rental property depreciation and interest deductions work together to transform your tax bill into wealth-building capital. The strategy is completely legal, remarkably powerful, and designed for high-income earners.

What Your Income Tax Is Actually About

Before we dive into the strategy, you need to understand what you're actually taxed on in Germany. Your income tax isn't just calculated on your salary—it's based on your total taxable income, which includes:

• Employment income (your salary)
• Additional employment income (RSUs, VSOPs, etc.)
• Self-employment income (if you freelance or run a business)
• Rental income (from investment properties)

This last point — rental income — is crucial for what comes next.

When you own a rental property, you declare the rental income on your tax return (Anlage V). But here's the key: you also get to deduct all expenses associated with that property from your rental income. These deductions include:

• Mortgage interest payments
• Property management fees
• Maintenance and repairs
• Insurance
• Property tax (Grundsteuer)
• Building depreciation (Abschreibung für Abnutzung - AfA)

If your deductible expenses exceed your rental income, you create a rental loss. This loss doesn't just disappear — it reduces your overall taxable income, which means you pay less tax on your employment income.

Example: You earn €100,000 in salary and have a €10,000 rental loss from your investment property. Your taxable income becomes €90,000 instead of €100,000. At a 42% tax rate, that saves you €4,200 in taxes.

The magic is in how you create that rental loss legally and strategically — and the most powerful tool is depreciation. This can turn a property that loses money on a monthly basis to being profitable after taxes.

Depreciation Gets You Your Money Back

Depreciation (Abschreibung für Abnutzung, or AfA) is the most misunderstood — and most valuable — tax benefit in German real estate investing. Let's demystify it.

What Is Depreciation?

Depreciation is the accounting concept that buildings lose value over time due to wear and tear. In Germany, the tax code lets you deduct this theoretical "loss" from your taxable income — even though you're not actually losing money.

The beautiful part: Depreciation is a non-cash expense. You don't spend a single euro, but you get to reduce your taxable income by thousands every year. The depreciation runs until the building value reaches zero - at 5% degressive depreciation you'll write off over approximately 20 years, at 2% linear it takes 50 years, and at 3% it takes 33 years.

What Can You Depreciate?

You can only depreciate the building itself, not the land. When you buy a property for €400,000, the purchase price is typically split:

• Land value: 20-30% (not depreciable)
• Building value: 70-80% (depreciable)

So on a €400,000 property, you might have €300,000 in depreciable building value.

Important: You can also depreciate renovation costs and improvements you make to the property — this is massive if you buy an older property and upgrade it.

Standard Linear Depreciation: The Baseline

The standard method is linear depreciation (lineare AfA), where you deduct a fixed percentage of the building value each year:

• Buildings constructed before 1925: 2.5% per year (40-year write-off)
• Buildings constructed 1925 or later: 2% per year (50-year write-off)
• New buildings (since October 2023): 3% per year (33-year write-off)

Legal basis: § 7 Abs. 4 EStG (Einkommensteuergesetz)

Example: €300,000 building value × 3% = €9,000 annual deduction

At a 42% tax rate, that's €3,780 in tax savings every year, automatically, for 33 years.

Game-Changer #1: Degressive Depreciation (5%)

Since October 2023, there's a new option that changes everything: degressive depreciation (degressive AfA) at 5% annually for the first years (§ 7 Abs. 5 EStG).

With degressive AfA, you can deduct 5% of the remaining building value each year instead of the fixed linear amount. This frontloads your tax benefits. You get bigger deductions early when they're most valuable.

How it works:

• Year 1: 5% of €300,000 = €15,000 deduction
• Year 2: 5% of €285,000 = €14,250 deduction
• Year 3: 5% of €270,750 = €13,538 deduction
• And so on...

You can use degressive for several years, then switch to linear when it becomes more beneficial (typically around year 8-10). This flexibility is huge. Or you sell the property tax free after 10 years when the tax benefits become less significant.

Who qualifies: Only for newly constructed residential buildings where the construction permit was issued after September 30, 2023, AND you didn't start construction before October 1, 2023.

Tax savings (Year 1): €15,000 × 42% = €6,300 cash back through reduced taxes

Game-Changer #2: Special Depreciation (Sonder-AfA)

On top of regular depreciation, you can claim special depreciation (Sonder-AfA) for certain new residential buildings (§ 7b EStG). This adds:

• 5% per year for the first 4 years (total of 20% extra deduction)

This is IN ADDITION to your regular depreciation (linear or degressive).

Requirements:

• New residential building
• Construction costs up to €5,000 per m² of living space
• Building permit issued in 2023 or later
• You can't live in it yourself (must be rented)

Combined power: In year 1, you could claim:

• 5% degressive AfA: €15,000
• 5% Sonder-AfA: €15,000
• Total first-year depreciation: €30,000

At 42% tax rate: €12,600 tax savings in year one alone

Game-Changer #3: Heritage Protection Properties (Denkmalschutz)

Properties under heritage protection (Denkmalschutz) get the most aggressive depreciation benefits through three concurrent streams:

1. Enhanced renovation depreciation:

• 9% per year for 8 years, then 7% per year for 4 years on enhanced renovation costs
• Applies to modernization bringing the property to new-build standards

2. Standard renovation depreciation:

• 2% per year (linear) on standard restoration costs
• For work maintaining the old structure

3. Old building depreciation:

• 3% per year (linear) on the existing building portion
• Standard old building depreciation rate

Typical breakdown on a €400,000 heritage property:

• 72% renovation costs (€288,000):
  • 86% enhanced @ 9%/7%: €247,680
  • 14% standard @ 2%: €40,320
• 16% old building @ 3%: €64,000
• 12% land (not depreciable)

Year 1 depreciation:

• Enhanced: €247,680 × 9% = €22,291
• Standard: €40,320 × 2% = €806
• Old building: €64,000 × 3% = €1,920
• Total Year 1: €25,017

At 42% tax rate: €10,507 tax savings in year one, continuing with three concurrent streams for 12+ years.

Requirements:

• Property must be officially listed for protection
• Renovations must be approved by heritage authorities
• Significantly more complex but extraordinarily tax-efficient

Example Calculation: The 12-Year Picture

Let's model a real-world scenario to see how this works in practice.

Your Situation:

• Annual salary: €100,000
• Tax bracket: 42%
• Current annual income tax: ~€32,000

Property Investment:

• Purchase price: €400,000
• Land value (25%): €100,000
• Building value (75%): €300,000
• New construction (eligible for degressive + Sonder-AfA)
• Financing: 100% at 4% interest
• Monthly rent: €1,500 (€18,000/year)
• Annual operating costs: €3,000

How to Think About Cashflow Here

Key insight first: High interest rates on investment properties aren't bad if you can handle them — they're deductible. At 42% tax rate, a 4% mortgage effectively costs you 2.32% after taxes. Higher interest = larger deductions = bigger tax savings in early years.

Critical liquidity requirement: While after-tax calculations show profitability, you must be able to cover the pre-tax negative cashflow upfront each month. If a property loses €750/month before taxes, you need that available in your budget until you receive the tax refund. This is why stable income and emergency reserves are non-negotiable. Pre-tax cashflow determines if you can afford it; after-tax cashflow determines if it's worth it.

Now let's see how this plays out in the complete cashflow picture.

Most people calculate rental property cashflow wrong—they only look at pre-tax numbers. Here's the framework:

Pre-Tax vs After-Tax Cashflow

Pre-tax (what most people only see):

• Rent: €1,500
• Mortgage: -€2,000
• Operating: -€250
• Monthly: -€750 ❌ "This loses money!"

After-tax (the complete picture):

• Rent: €1,500
• Mortgage: -€2,000
• Operating: -€250
• Tax savings breakdown:
  • Depreciation deduction (5% + 5%): +€525/month
  • Interest deduction: +€560/month
  • Total tax savings: +€1,085/month
• Monthly: +€335 ✓ Actually profitable

The "loss" is really forced investment into equity, funded by tax savings.

Timing & Receiving Tax Benefits

You receive tax benefits through:

1. Adjusted withholding (Lohnsteuerermäßigung) - get it monthly. Yes this is possible if you know how to file it.
2. Annual refund - lump sum when filing taxes

Best practice: Adjust withholding for better monthly liquidity, or build reserves knowing you'll get a large refund.

The Challenge: Finding These Properties

The math works beautifully, but finding properties that qualify for maximum depreciation (new construction, degressive + Sonder-AfA eligible) is the hard part. These properties are rare, highly sought-after, and often sold before hitting the public market.

This is where Financemate helps: We maintain a curated portfolio of approximately 50 pre-vetted investment properties at any given time - all qualifying for aggressive depreciation strategies. Different locations, different price points, different tax optimization profiles.

In your free Financemate account, you can browse these exclusive properties and see exactly how each one would impact your personal tax situation, cashflow, and net worth based on your actual income and financial profile.

Create free account →

Who This Is Worth For

This strategy requires specific conditions to work:

High Income with Potential Pre-Tax Negative Cashflow

At €90,000+, you're solidly in the 42% tax bracket (starts at €66,761). This is where the math becomes compelling:

• Below €66,761: Tax savings meaningful but not transformative
• €90,000-€150,000: Sweet spot—enough income to handle cashflow, massive tax benefits, good borrowing power
• €150,000+: Kind of becomes a no-brainer. 100% Financing very likely, can still do ETFs & Co.

Requirements Checklist

This strategy works if you have:

• Annual income €90,000+, tax bracket 42%+
• Stable employment
• Access to 90-108% financing
• €20,000-30,000 emergency fund (separate from property)
• Comfortable with leverage and complexity (Financemate takes the complexity away)
• Property with favorable depreciation (new construction ideal, Financemate has these properties, and only those)

Not worth it if you have:

• Income below €80,000, tax bracket < 42%
• Uncertain Germany plans (< 5 years)
• Poor credit or unstable income
• No emergency reserves
• Uncomfortable with property management or outsourcing it

Rule of Thumb

For every €20,000 in income above €90,000, you can comfortably absorb roughly €10,000 in annual rental losses through your increased tax savings.

Match your income to property depreciation: higher income → larger properties with more aggressive depreciation strategies.

Evaluate Real and Exclusive Financemate Properties With Your Financial Situation For Free

Here's the reality: the theory is simple, but the execution is hard alone.

The depreciation rules, cashflow calculations, and tax optimization we've covered apply to everyone — but whether they work for your specific situation depends on dozens of variables:

• Your exact income and tax situation
• Your other deductions and tax optimization opportunities
• Your home country tax implications (if you're an expat)
• The specific property you're considering
• Current financing offers from banks
• Your liquidity and risk capacity
• Your timeline and life plans

This is where most people get stuck: they understand the concept but can't translate it into a confident decision for their situation.

What Financemate Offers

Step 1: Free property to income and preference matching

• Create free Financemate account
• Affordability check & preferences
• Browse (recommended) properties
• See how that specific property impacts your taxes, cashflow and networth

Step 2: Understand Real Estate Investing like nobody you know (free)

• 1:1 session with a Financemate expert
• We look at the property and your numbers together
• We explain details
• You can ask us anything
• We give you an opinion on the fit of the property to your life goals

Step 3: Execute with a team of experts

• We help you get a real financing offer from the bank
• Free session with the listing owner (real estate veteran with over 2 decades of experience)
• Buy the property
• Notary support, English contracts available (semi-remote possible)
• Save on buyer's commission
• Post purchase support with tax filings
• Free session: What's next? (Optional: holistic financial planning)

Note: We only get paid if you actually buy a property (by the seller). If the process unravels it's not for you, you paid nothing but time and got free education. We have learnt how to improve our product. Simple as that. No commissions on mortgages/insurance. The commission for Financemate comes from the seller - we work with property developers directly, skipping the middle man.

Why this works (for us too): We love a win-win-win situation. By really crunching the numbers and making sure the property investment suits your financial situation and life goals, we make you happy. By having the right buyer for the right property, we make the developers happy. By going through a great experience and potentially keep working with us or sharing us with your friends, you make us happy. Oh, and we can negotiate better deals with the developers in the future. For your second property or your 4th. Everything is possible :).

Your Next Step

Find out whether it could be worth it for you by creating a free Financemate account to browse exclusive properties, use our calculator with your income, or schedule a free understanding session.

OR

Share the article with a friend to share your learnings, masterfully procrastinate deeper understanding or discuss the idea. Everyone usually has a friend that's a bit financially savvy to sense check this with. Or you are that friend, then share it and say I told you so!

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Disclaimer: This article provides educational information about tax optimization strategies in Germany and does not constitute financial, legal, or tax advice. Tax laws are complex and subject to change. You should consult with qualified tax advisors and financial planners before making any investment decisions. Every individual's situation is unique, and results will vary. Real estate investments carry risks including loss of capital, illiquidity, and market volatility.