Taxing rental income: the overview for landlords (2026)
Taxing rental income: the overview for landlords
Rental income counts as income from renting and leasing (Einkünfte aus Vermietung und Verpachtung, § 21 EStG). But what is taxed is the surplus, not the rent.
From the income you deduct your income-related expenses (Werbungskosten, § 9 EStG), above all the depreciation on the building (AfA). What remains is taxed at your personal income tax rate. Everything is declared on the Anlage V, the rental income schedule, including a loss.
§ 21 Abs. 1 Satz 1 Nr. 1 EStGIn 60 seconds
What is taxable is the surplus: rental income minus income-related expenses (Werbungskosten, § 9 EStG). There is no tax-free threshold for rental income.
Passed-on ancillary costs (Nebenkosten) count as income too. They are not a pass-through item, but income against which the actual costs stand as expenses.
The largest cost block is usually the depreciation on the building (AfA, § 7 EStG): as a rule 2 % of the building share per year, 3 % if completed after 31.12.2022.
Only the building is depreciated. The share attributable to the land stays out of it.
Of a loan, only the interest is deductible, not the repayment of principal, that builds assets.
A loss belongs on the Anlage V as well: it only reduces your tax if you report it.
What the law says
Income from renting and leasing includes income from the renting and leasing of immovable property, in particular of land, buildings and parts of buildings.
What you can deduct, and what you cannot
| Area | Deductible (Werbungskosten) | Not deductible |
|---|---|---|
| The property | building depreciation, AfA (§ 7 EStG) | the purchase price itself, it runs through the AfA |
| The loan | interest on the debt | the repayment of principal (asset building) |
| Ancillary costs | costs not passed on, plus property tax, insurance, management | costs passed on, to the extent the tenant bears them |
| Use | maintenance and repairs | privately used shares |
A worked example
A rented flat, building share 200,000 euros, completed 1998:
Of €12,000 in income, €600 stays taxable. The expenses carry the rest. That is the normal case, not a trick.
How much AfA am I entitled to?
The building AfA spreads the acquisition cost of the building over its useful life. Which rate applies depends on the year of completion:
| Building / case | Straight-line AfA rate |
|---|---|
| Residential building, completed from 1925 | 2 % per year |
| Residential building, completed after 31.12.2022 | 3 % per year |
| Residential building, completed before 1925 | 2.5 % per year |
| Listed building / redevelopment area | higher rates (§§ 7h, 7i EStG) |
What counts is always the building share of the purchase price. The share attributable to the land is not depreciated. It does not wear out.
What happens with a loss?
If expenses exceed income, you have an excess of income-related expenses. It is offset against your other income and lowers your tax, but only if you declare it.
This requires an Überschusserzielungsabsicht (intent to make a surplus): if you write losses indefinitely with no prospect of an overall surplus, you risk the Finanzamt treating it as Liebhaberei (a hobby) and disallowing the losses. For long-term letting at the local market rent, that intent is generally assumed.
Common mistakes
They are taxable income. Omit them and you risk the Finanzamt (tax office) estimating your figures.
Only the interest portion of the loan is deductible.
Only the building share is depreciated. You have to split the purchase price.
An excess of expenses only lowers your tax if it appears on the Anlage V.
Without year-round records, repair invoices and payment evidence go missing, and with them deductible expenses.
What to do next
Add up the income: base rent plus passed-on ancillary costs, as actually received in the calendar year.
Split the purchase price into land and building, only the building share is depreciated.
Document the expenses: AfA, loan interest, repairs, insurance, management, Grundsteuer.
Enter everything on the Anlage V, even if the result is a loss.
Frequently asked questions
Do I have to tax my rental income?
Yes. Rental income from let housing counts as Einkünfte aus Vermietung und Verpachtung (income from renting, § 21 EStG) and is subject to income tax. What is taxed, however, is not the gross rent but the surplus. Income minus Werbungskosten (income-related expenses). You declare it on the Anlage V (rental income schedule) of your income tax return. A 520-euro-per-year Freigrenze (exemption threshold) applies only to the temporary subletting of part of your own home.
How high is the tax on rental income?
There is no separate tax rate for rental income. The surplus from Vermietung und Verpachtung is added to your other income and taxed at your personal Einkommensteuersatz (income tax rate, progressive, in 2026 from 0 to 45 percent plus Solidaritätszuschlag and, where applicable, Kirchensteuer). How much tax arises therefore depends on your total taxable income.
What can I deduct as a landlord?
Deductible are all Werbungskosten (income-related expenses, § 9 EStG) connected with the letting: the building AfA (depreciation, § 7 EStG), Schuldzinsen (loan interest), Erhaltungsaufwendungen (maintenance and repairs), administrative and ancillary costs not passed on to tenants, Grundsteuer (property tax), insurance and travel costs. Not deductible are the loan repayment (Tilgung) and the purchase price itself: the purchase price only enters through the AfA.
What is the AfA on a rental property?
AfA stands for Absetzung für Abnutzung, the annual depreciation of the building. It spreads the acquisition or construction cost over the useful life and is usually the single largest Werbungskosten item. Under § 7 Abs. 4 EStG it is generally 2 percent per year for residential buildings, and 3 percent for residential buildings completed after 31 December 2022. Only the building share is depreciated, not the land.
What happens if the letting makes a loss?
If Werbungskosten exceed rental income, you have a Werbungskostenüberschuss. A tax loss. You can offset it against your other income (such as salary) and so reduce your overall tax. This requires an Überschusserzielungsabsicht (intent to make a surplus); without a lasting prospect of profit the Finanzamt may treat it as Liebhaberei (hobby loss) and disallow the losses. A loss must also be declared on the Anlage V.
This page gives general information as at the date shown. It does not replace legal advice on an individual case.