There is a lot of profit in renting an apartment

Tax rental income

Income from rental in the tax return

From a tax point of view, rental income according to §21 of the Income Tax Act is income from renting and leasing and therefore subject to income tax. Find out here, among other things, from when the tax authorities levy taxes on rental income, how rental income is taxed and which special features apply to sales tax.

Where can rental income come from?

You receive rental income, for example, from:

    • renting a condominium
    • renting a house
    • renting a holiday home
    • subletting living space in your own home
    • the leasing of undeveloped land (also: heritable building rights)
    • renting out a parking space or garage

How much do I have to pay tax on rental income?

The amount of income from renting and leasing that is taxable depends on the personal income tax rate of the landlord. Taxable rental income must be entered in Appendix V of the income tax return. It is possible to offset other income such as a taxable salary with losses resulting from the rental. In this way, as a landlord, you can reduce your personal tax burden.

The inflow and outflow principle applies to taxation. This means: Income such as rent or expenses such as the reimbursement of ancillary costs to the tenant are taxable in the year in which the payment was actually made.

As a landlord, can I also claim expenses for tax purposes?

You can claim expenses related to your property in your tax return as income-related expenses. These costs include:

    • Refurbishment or renovation costs
    • ongoing costs that cannot be passed on to the tenant, such as expenses for property management or property tax
    • Brokerage costs, fees for advertisements or rental costs for new rentals
    • Legal fees incurred in connection with the property

If you pay tax on rental income, there are additional amounts that you can use to reduce your tax burden:

    • if the building was erected before December 31, 1924: depreciation of 2.5 percent over 40 years

In addition, the interest on debt for real estate financing ensures tax savings.

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Is there an allowance for taxing rental income?

Yes, the legislature sets an exemption every year, up to which an income does not have to be taxed. This also includes rental income. The rental income exemption was 9,000 euros in 2018, the rental income exemption in 2019 was 9,168 euros. The tax exemption for rental income 2020 has been increased to 9,408 euros. For married couples, the tax exemption is doubled for rental income (2020: 18,816 euros). If you stay within these limits with your income, you will not have to pay tax on rental income. There is also an exception for the short-term subletting of your own four walls: If the rental income is less than 520 euros for the entire year, the rental income remains tax-free.

Taxing rental income: an example invoice

How is rental income taxed? The sample calculation shows which costs are included in the taxation of rental income:

annual rental income8,000 euros
Interest on financing3,000 euros
running costs800 euros
depreciation2,600 euros
Repair costs in the current year1,000 euros
taxable income600 euros

From annual rental income of 8,000 euros, you have to pay tax on an amount of 600 euros, taking into account all income-related expenses and depreciation. If there are possibly higher repair costs in one year, the result would be a negative amount with which you would reduce your annual income and thus your tax burden.

Is there a difference between private and commercial rental (keyword: sales tax)?

As a landlord, you do not have to pay any sales tax - even if you are aiming to make a profit with the rental. An exception applies if you rent out a garage or a parking space: If the parking space or garage is rented out separately, the income is subject to VAT. On the other hand, if you rent a parking space or garage together with a house or apartment, you do not pay any sales tax.
If you, as a private landlord, rent out your property as a commercial space to a company that is subject to VAT, you have the choice of whether you want to rent it out with or without VAT. Any advantage of renting with sales tax: If the rental unit is to be renovated, the sales tax can be claimed from the tradesman's invoice when registering for sales tax and the tradesman's invoice reduced by 19 percent.

What are the special features when renting to family members?

If you rent an apartment to a relative, you shouldn't set the rent too low. Because so that the advertising costs can be 100 percent tax deductible, the rent must be at least 66 percent of the local comparable rent. Otherwise, the percentage of tax-deductible income-related expenses is based on the percentage ratio to the local comparative rent. That means: If the rent is only 40 percent of the local comparable rent, only 40 percent of the advertising costs can be deducted. If the relatives live in the apartment free of charge, no income-related expenses are tax-deductible.

Since the tax office carefully checks the rental of relatives, it is advisable to sign a written apartment rental agreement or house rental agreement with grandma, grandpa and Co., have the rent transferred to you and regularly increase it in accordance with the local comparative rent.

What taxes are there on a furnished apartment?

As the landlord, you also have to pay tax on the rental income for a furnished apartment. The furnishing itself offers a tax advantage, because the cost of the furnishings can be deducted from the tax. This is how you proceed: Furniture for which you have spent less than 800 euros can be fully tax-deductible in the same year. If the cost of the furniture is higher, you will have to write off it for tax purposes over several years.

Do I also pay taxes if my apartment is empty?

When a tenant moves out or when a tenant dies, it is not always possible to find a new tenant for his property immediately. The property is empty, there is no rental income, but there are still expenses for running costs such as property tax. The good news: These costs can also be deducted as income-related expenses for an empty apartment. The prerequisite, however, is that you can prove your efforts to re-let the tax office - e.g. by hiring a broker or regularly advertising the exposé of your property on various real estate portals. If you no longer intend to rent the property or if the apartment is no longer suitable for renting due to construction defects, it is no longer possible to deduct income-related expenses.

Tax rental income - FAQs

How is rental income taxable?

The amount of taxable rental income depends on the landlord's individual income tax rate. In principle, the taxable profits result from the rental of real estate. In addition to income from renting out houses or holiday apartments, this also includes parking spaces and leased land. The exact details are to be found in Appendix V of the income tax return. We have summarized everything you need to know about taxes on rental income here.

Which costs can landlords claim for tax purposes?

In principle, landlords can claim different expenses in connection with the rented property for tax purposes. In addition to renovation costs, this also includes fees for real estate agents, legal fees and non-allocable costs such as property tax. You can find out what else to consider when taxing rental income here.

What is the tax exemption for rental income?

The legislator sets the applicable tax exemption every year. In 2020, it will be 9,408 euros for rental income. In addition to the earned income, rental income is also tax-free up to this summer. For married couples, the double tax exemption of a total of 18,816 euros applies.

What does renting to family members mean for taxes?

The tax office looks carefully when renting out to relatives. It is therefore advisable to draw up a rental agreement for family members and not set the rent too low. The warm rent should be at least 66 percent of the local rent - otherwise the income-related expenses are not 100 percent tax-deductible.

Do landlords have to pay taxes for vacant apartments?

Even if an apartment is not rented, the owner has to pay running costs such as property tax. In order for these expenses to be deducted as business expenses for vacant properties, one condition applies: the landlord must prove to the tax office that he is trying to re-let.

Please note that our advice answers and articles cannot represent or replace legal, tax or financial advice. For clarification of your legal or financial matters, we ask you to consult the appropriate experts (e.g. lawyers, tax advisors or financial advisors). Despite great care and conscientious research, errors cannot be ruled out. We look forward to and are grateful for any relevant information, which we will try to implement in a timely manner.

Subject area: Renting real estate

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