How much tax can I save with a rented property?

There is no blanket amount. Savings depend on your personal tax rate, building share of the price, financing and running costs. Deductible expenses such as depreciation, loan interest and management reduce taxable rental income; the higher your rate, the greater each deducted euro’s effect. Your tax adviser can make a sound forecast using your actual figures.

Can I deduct a property’s purchase price from tax?

Not directly or all at once. The price is split between building and land. Only the building share is deducted through depreciation: 2% annually for buildings from 1925, 2.5% before 1925 or 3% for completion from 2023. Land is not depreciated because it does not wear out. Purchase costs allocated to the building increase its depreciation base.

Is interest on property financing tax-deductible?

Yes. Loan interest for financing a rented property is deductible, as are financing costs. Principal repayment is not deductible: it builds wealth rather than being an expense. Interest on owner-occupied property is generally not deductible as a rental expense.

What happens for tax when a rented property is sold?

If sold within ten years of acquisition, a rented property’s gain is a private disposal under §23 EStG, taxed at your personal rate. After the ten-year holding period, gains on privately held property are generally tax-free. An exception applies to personal use in the sale year and the two preceding years. Whether a gain arises and how much depend on market performance and are not guaranteed. Please check current rules.

Save Tax with Property: Options for Investors

By Loro Real Estate team · Last updated: July 2026

Rented property is one of the few investments for which tax law recognises many costs. Saving tax with property needs no complicated structure: understanding and correctly applying existing rules is enough. This guide covers the main options for private investors: deductible expenses, depreciation (AfA) as the largest lever, interest and running costs, the holding period on sale and special rules for new builds. We also explain why tax benefits should always be a bonus in a sound investment, never the reason to buy.

Tax law changes regularly. All rates and periods reflect the position at publication and should be checked against current rules before every decision, ideally with your tax adviser.

The basic principle: reduce taxable rental income

As a private landlord you earn rental income, taxed at your personal income tax rate. However, tax applies not to the full rent but to the surplus after all deductible expenses. These are all expenses incurred to obtain, secure and maintain your rental income.

Every euro of recognised expenses reduces income subject to tax. If expenses exceed rents, which can happen in early years because of interest and depreciation, a tax loss arises that may be offset against other income depending on your circumstances. For details of rental taxation, see Letting property and taxes.

Depreciation: the biggest lever

For most investors, depreciation (AfA) is the largest individual deductible expense. Buildings wear out over time, and this loss of value can be deducted year after year without an ongoing cash outflow.

Straight-line residential depreciation (§7(4) EStG) is 2% annually for construction from 1925, 2.5% before 1925, and 3% for completion from 2023. Only the building share is depreciated, not land, which does not wear out for tax purposes. Allocated building-related additional purchase costs also increase the depreciation base. Details, illustrations and special cases appear in our guide Property depreciation (AfA).

Deduct loan interest, not repayments

When a loan finances a rented property, its interest is fully deductible, as are financing costs. Principal repayment is not: it builds wealth rather than being an expense, exchanging debt for ownership.

An annuity payment’s interest share is highest in early years, so financing’s tax benefit is greatest initially and falls as repayment progresses. Borrowing or artificially maintaining debt only for tax relief is not sensible: each deducted euro of interest must first be spent, and refinancing carries interest rate risk.

Ongoing deductible expenses: management, maintenance and more

Beyond depreciation and interest, many running costs reduce taxable rental income, including:

Management costs, such as building, individual property or rental management
Maintenance and repairs
Travel costs, for example to owners’ meetings or the property
Tax advice costs related to letting
Account fees, non-recoverable operating costs and vacancy costs

Major works shortly after purchase follow a special rule: if net repair and modernisation costs within three years exceed 15% of building acquisition costs, they are acquisition-related construction costs (§6(1) no.1a EStG), deducted through depreciation rather than immediately. Anyone planning renovations should know this limit and check current details.

Sell tax-free after ten years: the holding period

A second major tax advantage appears at the end of the holding period. Gains on a privately held rented property are generally tax-free after ten years. Within that period, a private disposal (§23 EStG) is taxed at your personal rate. An owner-use exception allows earlier tax-free sale where you lived in the property during the sale year and the two preceding years.

Tax exemption concerns a possible gain; whether one occurs depends on value development, which is not guaranteed. For details, periods and examples, see our guide on Property capital gains tax (Spekulationssteuer).

Declining-balance and special depreciation for new builds

Additional options exist for new builds. Declining-balance depreciation allows 5% of remaining value annually, optionally for construction starting between 1 October 2023 and 30 September 2029 under the Growth Opportunities Act; a later switch to straight-line is possible. Special rental-housing depreciation (§7b EStG) adds up to 5% annually for four years but requires Efficiency House 40/QNG standards and construction cost caps. Both are conditional, so check current rules. For detail, see our depreciation guide.

An important limit: tax savings are a bonus, not a reason to buy

Attractive as these options are, a property that works only because of tax savings is not a sound investment. We deliberately avoid so-called tax-saving schemes: legislation and your circumstances can change, and no tax effect compensates indefinitely for a weak property. Location, condition, lettability and conservative calculations must come first; tax effects then improve the result.

This includes honestly considering every property investment’s risks: rent default, interest changes, value fluctuations and limited saleability. Loro Real Estate GmbH has followed this substance-led approach since 2018, with selected, assessed properties in Rhein-Neckar and Hessen, no buyer’s commission, now serving over 250 clients and more than 1000 units. Beyond the larger cities, our selected portfolio also includes investment properties in Schwetzingen.

To calculate a specific property, use our interactive property investment calculator to see how purchase costs, financing and running costs affect pre-tax results. If you would like to turn your starting position into a long-term strategy, contact us for a non-binding initial consultation . The specific tax arrangements should then be handled by your tax adviser.

This article is for information only and does not constitute investment, tax or legal advice.

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Save tax with property: investors’ options