Deductible Expenses (Werbungskosten)
Property costs you can deduct from taxable income
Werbungskosten (deductible expenses) are all costs directly related to earning rental income. They reduce your taxable income euro-for-euro, making them incredibly valuable for real estate investors.
What Counts as Deductible?
German tax law allows you to deduct a wide range of expenses:
Financing Costs:
- • Mortgage interest
- • Loan processing fees
- • Early repayment penalties
Property Costs:
- • Property tax (Grundsteuer)
- • Building insurance
- • Property management fees
Maintenance & Repairs:
- • Repairs and maintenance
- • Renovations (sometimes)
- • Garden/cleaning services
Operating Costs:
- • Utilities (if not passed to tenant)
- • HOA fees (Hausgeld)
- • Legal/accounting fees
AfA: The King of Deductions
While all Werbungskosten are valuable, AfA (depreciation) stands out because:
- It's a guaranteed €8,000-12,000/year deduction for most properties
- It doesn't require any cash outflow (unlike repairs or interest)
- It continues for 50 years
Real Example: Annual Deductions
€450,000 Investment Property:
- AfA (2% of €360k building value):€7,200
- Mortgage interest (4.4% of €405k):€17,820
- Property management (10% of rent):€1,800
- Insurance + property tax:€1,200
- Maintenance reserve:€1,500
- Total deductions:€29,520
If you're in the 42% tax bracket: €12,398 in tax savings
Important Rules
- Keep all receipts: You must document every expense
- Repairs vs. improvements: Repairs are fully deductible immediately; major improvements must be depreciated
- Personal use disqualifies you: Property must be rented out, not used personally
Related Terms
AfA(Absetzung für Abnutzung)
AfA (Absetzung für Abnutzung) is the German term for depreciation on investment properties. It allows you to deduct 2% of the building value from your taxable income each year for 50 years.
Tax Savings(Steuerersparnis)
Tax savings from real estate come from deducting property expenses (interest, depreciation, costs) from your taxable income, reducing the amount of income tax you pay.
Mortgage Interest(Hypothekenzinsen)
Mortgage interest (Hypothekenzinsen) is the interest portion of your mortgage payment. For investment properties, it's fully tax-deductible as a rental expense.