Tax Savings (Steuerersparnis)
How investment properties reduce your income tax burden
Tax savings (Steuerersparnis) from real estate investments come from deducting property expenses against your ordinary income. For high earners, these savings often exceed rental income itself.
How Real Estate Reduces Your Tax Bill
German tax law allows you to deduct all expenses related to earning rental income:
- AfA (depreciation): 2% of building value annually
- Mortgage interest: Fully deductible
- Operating costs: Management, insurance, repairs, property tax
- Financing costs: Loan origination fees, early repayment penalties
Real Example: €450,000 Property
Annual Income & Expenses:
Impact on Your Tax Return
Your Tax Situation:
Even though you collected €21,600 rent, you paid €2,948 less in income tax
The Cashflow Picture
Tax savings are real money that reduces your effective monthly cost:
- Monthly out-of-pocket cost: €150
- Annual tax refund: €2,948
- Effective monthly cost: €150 − €246 = −€96 (you're ahead!)
Higher Income = Higher Savings
The same €7,020 deduction saves:
• €1,755 at 25% tax rate
• €2,948 at 42% tax rate
• €3,159 at 45% tax rate
This is why real estate is particularly attractive for high earners in Germany.
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.
Sonder-AfA(Sonder Absetzung für Abnutzung)
Sonder-AfA is an enhanced depreciation benefit for newly built properties. It allows you to deduct 5% annually for the first 4 years, in addition to the standard 2% AfA.
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.