Marginal Tax Rate (Grenzsteuersatz)
The tax rate on your last euro of income
Your marginal tax rate (Grenzsteuersatz) is the percentage of tax you pay on your next euro of income. For real estate investors, this determines how valuable tax deductions like AfA and mortgage interest are.
Germany's Tax Brackets (2024)
- €0 - €11,604:0% (tax-free)
- €11,605 - €62,809:14% - 42% (progressive)
- €62,810 - €277,825:42%
- €277,826+:45% (Reichensteuer)
Most German real estate investors fall into the 42% bracket
Why This Matters for Real Estate
Every euro you deduct (via AfA, mortgage interest, or expenses) saves you taxes at your marginal rate:
- 25% bracket: €8,000 AfA = €2,000 tax savings
- 42% bracket: €8,000 AfA = €3,360 tax savings
- 45% bracket: €8,000 AfA = €3,600 tax savings
Real Example
Two Investors, Same Property:
Investor A: €45,000 salary
- Marginal tax rate: ~28%
- Total deductions: €25,000
- Tax savings: €7,000/year
Investor B: €95,000 salary
- Marginal tax rate: ~42%
- Total deductions: €25,000
- Tax savings: €10,500/year
Same property, €3,500 more annual benefit for high-income investor
Strategic Insight
Real estate is more attractive at higher incomes
The German tax system makes rental properties increasingly valuable as your income rises. This is why high earners often build portfolios of negatively-cashflowing properties—the tax benefits more than compensate for the monthly shortfall.
Income Tax + Solidarity Surcharge
Note: Your effective rate includes Solidaritätszuschlag (solidarity surcharge) of 5.5% of income tax. So the true 42% bracket is actually ~44.3% effective. This makes deductions even more valuable.
Related Terms
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.
Income Tax(Einkommensteuer)
Income tax (Einkommensteuer) in Germany is progressive, ranging from 14% to 45%. Rental income is added to your taxable income, but property expenses reduce it, potentially lowering your overall tax burden.