Do you own a property or are you planning to buy one? Many owners pay thousands of euros too much in taxes every year because they are unaware of the legal saving potentials. This article shows you how to reduce your financial burden through strategic tax optimisation and unlock the full potential of your property.
Chat with ImmoGPT for free now.
With access to Google, BORIS, and Deep Research.
The topic briefly and concisely
Gains from the sale of rented properties are tax-free after a holding period of 10 years, which can mean savings of up to 45%.
As a landlord, you can deduct almost all costs (interest, repairs, management) as business expenses, significantly reducing your tax burden on rental income.
Lifetime gifts allow for the repeated use of exemptions (e.g. €400,000 per child) every 10 years and are often fiscally superior to inheritance.
Wondering if you are maximising the potential of your property? The right strategy for tax optimisation is often the key lever to significantly increase net returns. Whether buying, selling, letting, or inheriting – the German tax system offers numerous, often unutilised opportunities to legally reduce your tax burden. From accurately deducting advertising expenses, which protect your rental income, to tax-free sales after certain periods: forward planning can make a difference of tens of thousands of euros. We guide you through the key levers and show you how to avoid pitfalls and systematically protect and increase your property assets.
Key Takeaways: Your Central Levers for Tax Optimization
Utilise the speculation period: Profits from the sale of a rented property are completely tax-free after a holding period of 10 years.
Maximise deductible expenses: As a landlord, you can annually deduct interest, repairs, and management costs, which directly reduces your taxable income.
Apply depreciation (AfA): Depreciate the acquisition or production costs of the building annually by up to 3%.
Utilise inheritance tax allowances: Thoughtful gifts during one's lifetime can reactivate allowances of up to €500,000 per child every 10 years.
Optimise ancillary purchase costs: Itemise movable assets separately in the purchase contract to reduce land transfer tax by thousands of euros.
These fundamental tactics form the foundation of any successful property strategy.
Strategy 1: Secure tax-free sales by adhering to the speculation period
One of the greatest financial advantages for property owners is the so-called speculation period. If you sell a rented property within ten years of purchase, the entire profit is subject to your personal income tax rate, which can be as high as 45%. However, if you wait just one day longer than the 10-year period, the entire sales profit is 100% tax-free. For a capital gain of €200,000, this translates to a tax saving of up to €90,000. For owner-occupied properties, the regulation is even more favourable: the period is reduced to just three years if you have lived in the property during the sale year and the two previous years. Therefore, a precise review of the periods is essential, as detailed in the article on selling an inherited house and the speculation period. Strategic planning of the sale timing is thus the simplest form of tax optimisation.
Strategy 2: Protect rental income through advertising expenses and depreciation
As a landlord, you must pay tax on your rental income, but in return, you can deduct almost all incurred expenses as income-related expenses. This significantly reduces your taxable income. The most important deductible items include:
Loan interest: The interest on the property loan is fully deductible.
Maintenance costs: Expenses for repairs and maintenance can be claimed immediately.
Administrative costs: Fees for property management, account management, or a tax advisor are deductible.
Ongoing operating costs: Property tax, insurance, and other costs that cannot be passed on to tenants also reduce your tax.
Additionally, you benefit from depreciation for wear and tear (AfA). Depending on the year of construction, you can depreciate 2%, 2.5%, or for new buildings from 2023 even 3% of the building costs annually. A professional appraisal of the remaining useful life can even increase the depreciation rate in some cases, further enhancing your annual tax savings.
Strategy 3: Smartly manage incidental costs when purchasing
Even before actual ownership, you can set the course for a lower tax burden. The land transfer tax, which ranges from 3.5% to 6.5% of the purchase price depending on the federal state, offers opportunities for optimisation. If you buy an existing property, ensure that movable extras such as the fitted kitchen, awnings, or a sauna are itemised separately in the notary contract at a realistic value. This portion of the purchase price is exempt from land transfer tax. For a kitchen valued at €15,000, you can save €975 in a federal state with a 6.5% tax rate. With new construction projects, even greater savings are possible: First, acquire the land, and only afterwards hire a building company separately. In this case, the land transfer tax is levied only on the pure land price, not on the often much higher construction costs. This way, you can fully exploit the tax benefits of land acquisition.
Strategy 4: Transfer assets through gifts in a tax-optimised manner
Anyone wishing to pass on their property assets to the next generation should not wait until inheritance. A lifetime gift is one of the most effective tools for tax optimisation. Personal allowances are high and can be strategically utilised:
Spouses and civil partners: €500,000
Children and stepchildren: €400,000
Grandchildren: €200,000
Siblings, nieces, and nephews: €20,000
The crucial advantage of a gift is that these allowances can be fully utilised again every 10 years. A married couple with two children can thus transfer property values of 1.6 million euros to their children completely tax-free over 20 years. A life interest secures the parents, allowing them to continue living in the property or keeping the rental income for themselves. An inheritance tax calculator helps with the initial calculation. This makes succession planning feasible and minimises the tax burden.
Strategy 5: Avoid pitfalls such as commercial real estate trading
Where there is significant potential for savings, there are also risks. A critical point is the so-called three-property limit. If you sell more than three properties within five years as a private individual, the tax office can quickly classify you as a commercial property dealer. The consequence: The profits from all sales become subject to trade tax, and the advantageous speculation period no longer applies. Even an inherited apartment building that is divided into individual flats and sold can exceed this limit. A detailed analysis of your buying and selling intentions is therefore crucial to avoid inadvertently making tax-related mistakes. In case of doubt, a consultation with our experts or the use of our ImmoGPT chat can provide initial clarity before you take action.
tax optimisation
Optimising the taxation of property is not a one-time act but a continuous process. From observing the 10-year speculation period to fully deducting all advertising costs and planning gifts in advance – every step has direct financial impacts. Even small adjustments, such as separately listing a kitchen in the purchase contract, can save over €1,000. A professional, data-driven valuation from Auctoa not only provides you with the fair market value but also a solid basis for your tax decisions. Act proactively to protect your assets and sustainably increase your returns.
Additional useful links
The Federal Ministry of Finance provides an application for the allocation of purchase prices of real estate, which is helpful in tax assessment.
On gesetze-im-internet.de, you can find the full text of Paragraph 7 of the Income Tax Act (EStG), which governs depreciation for wear and tear (AfA).
The link to gesetze-im-internet.de takes you directly to Paragraph 23 of the Income Tax Act (EStG), which contains the provisions for private sales transactions.
FAQ
What is the capital gains tax on real estate?
The speculation tax is not a separate type of tax. The profit from a private sale transaction within the speculation period is taxed at your personal income tax rate, which can be up to 45%, plus the solidarity surcharge and, if applicable, church tax.
Can I deduct the real estate transfer tax from my taxes?
Only if you rent out the property or use it commercially. The real estate transfer tax is then considered part of the acquisition costs and is depreciated along with the building value over the period of use (e.g. 50 years). It is not deductible for personal use.
What is the difference between maintenance expenses and production costs?
Maintenance expenses (e.g. repairing a broken heating system) can be fully deducted as advertising expenses in the same year. Production costs (e.g. adding a balcony, fundamental modernization) increase the value of the property and must be depreciated over the remaining useful life.
How can I optimise the new property tax from 2025?
Direct optimisation is hardly possible because the calculation is based on the new property tax values and the municipalities' assessment rates. However, submitting the property tax declaration correctly and on time is crucial to avoid incorrect, potentially excessive assessments. Use our <a href="/solutions/subsolutions/grundsteuer-rechner">property tax calculator</a> for preparation.
What tax benefits do I have for energy-efficient refurbishment?
For a self-occupied property that is older than 10 years, you can deduct 20% of the renovation costs (up to a maximum of €40,000) from your tax liability, spread over three years. The distribution is: 7% in the first and second year, 6% in the third year.
Do I also have to declare rental income from relatives for tax purposes?
Yes, rental income must always be taxed. For the tax office to recognize the rental agreement and the associated advertising costs, the rent should be at least 66% of the local comparable rent. If the rent is between 50% and 66%, a detailed examination of the profit-making intention is necessary.
