New special depreciation for rental properties

The "Act on the Tax Promotion of New Rental Housing" of 04.08.2019 introduced a temporary special depreciation under § 7b EStG to promote investment in new rental housing. This applied to investments for which a building application or notification was made between 01.09.2018 and 31.12.2021.

• The 7b special depreciation amounted to 5% of the acquisition or production costs in each of the first four years, up to 2,000 Euro per square metre of living space.
• An additional linear depreciation of 2% per year was deductible, but based on the actual acquisition or production costs (§ 7 para. 4 EStG).
• Only buildings with construction costs of no more than 3,000 Euro per square metre of living space were eligible.
• The subsidised property had to be rented out for at least 10 years, with no rent cap.

From 01.01.2023, the expired 7b special depreciation will be renewed. It now applies to rental apartments for which a building application or notification is made between 01.01.2023 and 30.09.2029, provided certain (energy) efficiency requirements are met.

• The 7b special depreciation amounts to 5% of the acquisition or production costs in each of the first four years up to the eligible assessment basis.
• An additional linear depreciation of 2% per year is also possible, but based on the actual acquisition or production costs.
• Eligible acquisition or production costs are up to 4,000 Euro per square metre of living space.
• Construction costs must not exceed 5,200 Euro per square metre of living space.

New special depreciation for rental properties

What can I deduct as income-related expenses?

All expenses incurred in connection with the rented property can be deducted as income-related expenses. These include in particular the following costs:

• Administrative costs
• Costs for estate agents, service charges, advertisements or a rental service
• Interest on a loan
• Depreciation
• Property tax
• Bank charges, overdraft interest etc.
• Insurance (liability, fire, water etc.)
• Electricity costs for house lighting
• Heating and hot water
• Costs for sewage, waste disposal, chimney sweep, street cleaning
• Caretaker costs (also property management and cleaning)
• Trips to the property, estate agent or owners' meeting
• Cosmetic repairs

What can I deduct as income-related expenses?

What are income-related expenses in connection with the rental and leasing of a property?

You can deduct income-related expenses from your income from renting and leasing. Income-related expenses are costs incurred for the acquisition, securing, and maintenance of the property.

These expenses are deducted from the rental income. A positive result, i.e., a profit, increases your tax burden. A negative result leads to a tax saving.

A tax loss from renting and leasing due to high income-related expenses can be offset against other positive income. The decisive factor for entering the income-related expenses in the tax return is the date of payment. When the expenses were incurred or when you received the invoice is generally irrelevant.

You can also claim income-related expenses if the property is not yet rented. However, there must be an intention to rent. If you do this, the tax office will initially recognise the costs but will issue the tax assessment on a provisional basis. If you do not rent out the property, the tax office may revoke the deduction of income-related expenses.

What are income-related expenses in connection with the rental and leasing of a property?

What is an energy performance certificate and what costs are involved?

The energy performance certificate is a document that assesses the energy requirements of a building. There are 2 types of energy performance certificates: the requirement-based certificate and the consumption-based certificate. The requirement-based certificate considers the building's energy needs, while the consumption-based certificate analyses the actual energy consumption of recent years. Energy performance certificates are valid for ten years from the date of issue.

As a landlord of a residential building in Germany, you are legally obliged to provide an energy performance certificate for your property. The certificate provides information about the building's energy requirements and serves as a guide for tenants and buyers. However, there are costs associated with obtaining the energy performance certificate, which can affect landlords.

The costs for obtaining an energy performance certificate depend on various factors, such as the size of the building, the type of certificate, and the effort required by the energy consultant. Generally, the expenses range from 150 to 600 Euro.

Deduct energy performance certificate as income-related expenses for landlords

As a landlord, you can declare the costs for obtaining an energy performance certificate as income-related expenses in your tax return. This applies regardless of whether you obtain the certificate due to a legal obligation or voluntarily. The costs can be claimed as income-related expenses under rental income.

The costs for the energy performance certificate are immediately deductible income-related expenses. It is advisable to keep the invoice for obtaining the certificate to present it in the event of a tax office review.

What is an energy performance certificate and what costs are involved?

What costs can landlords deduct for tax purposes during a vacancy?

Anyone renting out property in Germany must not only manage the rental, tenant selection, and support but also be prepared for vacancies. If a flat or house is vacant for a certain period, it can lead to financial losses. But what options are there to deduct expenses for temporary vacancies for tax purposes?

What are expenses for temporary vacancies?

Expenses for temporary vacancies include all costs incurred in connection with renting out property but cannot be covered by rental income due to vacancies. These include costs for maintenance and repairs, advertising, energy costs, property tax, and waste disposal fees. However, the vacancy must actually be temporary, meaning there must be a realistic chance that the flat or house will be rented out again.

Tax deductibility of expenses for temporary vacancies

Expenses for temporary vacancies can be deducted for tax purposes, but certain conditions must be met. Firstly, the costs may only arise if the property is rented out and no income is generated. Secondly, the costs must be necessary and reasonable, i.e., no luxury renovations or unnecessary maintenance work should be carried out.

The deductible expenses are claimed as income-related expenses under income from renting and leasing. They must be stated in the tax return for the respective year. When calculating income tax, they are then deducted from the rental income.

Overall, expenses for temporary vacancies can be deducted for tax purposes if they are necessary, reasonable, and actually incurred. However, landlords should ensure that the vacancy is indeed temporary and that there are realistic prospects of renting it out. If landlords have any uncertainties or questions about tax deductibility, they should consult a tax advisor.

What costs can landlords deduct for tax purposes during a vacancy?

Estate agent fees for rental and sale – what applies to landlords?

Since 01.06.2015, the so-called ordering party principle applies to rental properties in Germany: the person who hires the estate agent pays the commission. Landlords can no longer pass on estate agent fees to prospective tenants. A commission can only be charged if the tenant explicitly and in writing commissions the estate agent and the property is brokered exclusively through this order (§ 2 para. 1a Housing Brokerage Act).

Estate agent fees when buying property

This principle initially did not apply to property purchases. The amount and distribution of the estate agent's commission were long determined by regional customs or individual agreements. In some regions, the buyer paid the full commission, while in others it was shared.

Legal reform since 2020

On 12.06.2020, the Law on the Distribution of Estate Agent Costs in Purchase Contracts came into force. It stipulates:

• Buyers of single-family houses or flats may bear a maximum of 50% of the estate agent costs if they are acting as consumers.
• If only one party commissions the estate agent, they must pay.
• Cost sharing is possible, but the amount passed on to the buyer may not exceed half.
• If both buyer and seller jointly commission the estate agent, a 50% commission is mandatory.

Exceptions and implications

This regulation does not apply to commercial properties, multi-family houses, or building plots, and not if the buyer is acting commercially.

The new regulation aims to create more fairness and transparency. At the same time, estate agent commissions are expected to tend to decrease, as sellers will now more often negotiate the amount.

Significance for the tax return

Estate agent fees for rental:
If a landlord hires an estate agent for the rental of a property, the estate agent fees incurred can be claimed as advertising costs under income from renting and leasing in the tax return (Form V).

Estate agent fees when buying property:
When purchasing a property for rental, the estate agent fees are part of the acquisition costs and cannot be deducted immediately. However, they have a tax effect through the depreciation (AfA) of the building.

If the property is owner-occupied, estate agent fees are not tax-deductible.

Example:
A landlord purchases a flat for rental in 2025 and pays an estate agent's commission of 10.000 Euro. The commission is part of the acquisition costs and is taken into account for tax purposes on a pro-rata basis through the annual building depreciation (e.g. 2% over 50 years).

Legal basis and sources

• § 2 para. 1a Housing Brokerage Act
• § 9 Income Tax Act (advertising costs)
• § 6 para. 1 no. 1 Income Tax Act (acquisition costs)
• § 7 para. 4 Income Tax Act (depreciation)
• Law on the Distribution of Estate Agent Costs in the Brokerage of Purchase Contracts for Flats and Single-Family Houses (Federal Law Gazette I 2020, p. 1245)

Estate agent fees for rental and sale – what applies to landlords?

How are the costs of a fitted kitchen treated?

A fitted kitchen is not considered a single asset but consists of various components that are independent assets. A distinction is made between the sink and cooker on the one hand and the other kitchen elements on the other.

• Sink and cooker are considered non-independent building components required for the building's use as a residence. Therefore, these costs are part of the building's construction costs and are depreciated along with it. If the sink and cooker are replaced, the expenses are maintenance costs and can be fully deducted as advertising costs from rental income.

• The other parts of the fitted kitchen are independent assets. Their purchase costs can be deducted as advertising costs from rental income. If the purchase costs exceed 410 Euro (excluding VAT), they must be depreciated over the expected useful life. If an existing fitted kitchen is replaced with a new one, the purchase costs are not maintenance expenses and therefore cannot be fully deducted. Instead, the new fitted kitchen must be depreciated normally.

Currently, the Federal Fiscal Court has abandoned its previous view and established new rules for the tax treatment of fitted kitchens in rented flats: sinks and cookers are no longer considered non-independent building parts but are now 'normal' components of the fitted kitchen. The fitted kitchen is considered a single asset and must be depreciated over a 10-year period. This applies both to initial purchases and renewals (BFH ruling of 3.8.2016, IX R 14/15, published on 7.12.2016). The change in case law means a significant disadvantage for landlords: they can no longer immediately deduct individual components of the fitted kitchen, such as electrical appliances valued at less than 800.01 Euro (excluding VAT), as advertising costs. Instead, the entire fitted kitchen must be depreciated over 10 years, so only 10 per cent per year can be considered as advertising costs.

How are the costs of a fitted kitchen treated?