Income Tax (Einkommensteuer)
How rental income and deductions affect your taxes
Income tax (Einkommensteuer) in Germany is a progressive tax system where your rate increases with income. Understanding how rental properties affect your income tax is crucial for maximizing returns.
How Germany's Income Tax Works
Germany uses a progressive tax system with rates ranging from 14% to 45%:
- 0-11,604€: Tax-free (Grundfreibetrag)
- 11,605-62,809€: 14% to 42% (progressive)
- 62,810-277,825€: 42% flat
- 277,826€+: 45% (Reichensteuer)
How Rental Properties Affect Your Income Tax
Rental income is classified as "income from rental and leasing" (Einkünfte aus Vermietung und Verpachtung) and is added to your total taxable income. However, you can deduct all expenses related to earning that rental income.
Real Example
Income Tax with Rental Property:
Result: Your taxable income decreased by €8,000 despite receiving rental income!
Key Insight
The beauty of German real estate taxation: You can receive rental income while actually lowering your overall tax burden through deductions. This is especially powerful in the 42% tax bracket.
Related Terms
Marginal Tax Rate(Grenzsteuersatz)
Your marginal tax rate is the percentage of tax you pay on your next euro of income. In Germany, it ranges from 14% to 45%. This rate determines your tax savings from property deductions.
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.
Deductible Expenses(Werbungskosten)
Werbungskosten are expenses related to earning rental income that you can deduct from your taxable income. This includes mortgage interest, repairs, property management fees, insurance, and more.