Have you inherited a property and are wondering how to minimize the tax burden? Renting offers significant tax advantages that many heirs are unaware of. Discover how you can save thousands of euros with the right strategy.
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The topic briefly and concisely
Rented residential properties receive a 10% valuation discount on inheritance tax, which immediately reduces the tax burden.
As an heir, you continue the depreciation (AfA) of the previous owner, typically at 2% of the building's value per year.
A tax-free sale of the property is possible if there are more than 10 years between the purchase by the deceased and the sale by the heir.
Inheriting a property is a significant event, but it can quickly be overshadowed by tax issues. Is renting it out worthwhile from a tax perspective? The answer is a clear yes, as long as you know the rules. From correct depreciation (AfA) to the deduction of all advertising costs and strategic use of deadlines, the tax advantages of renting out an inherited property are considerable. This article shows you how to optimise your rental income and avoid pitfalls. A thorough valuation of your inherited property is the first step towards making data-driven decisions.
Key points at a glance: Your tax benefits
Reduce inheritance tax: Rented residential properties are valued at only 90% of their market value for inheritance tax purposes, directly reducing your tax burden.
Lower ongoing taxes: Deduct 2% to 3% of the building's value as depreciation (AfA) annually from your taxes, thus reducing your taxable income.
Deduct all costs: Virtually all expenses related to the property, from property tax to renovation costs, can be claimed as business expenses.
Sell tax-free: After a holding period of 10 years, which begins with the decedent, the profit from the sale is completely tax-free.
These strategies are crucial to fully unlock the financial potential of your inherited property.
Fundament of tax optimisation: Correct depreciation (AfA)
Are you wondering how you can claim the depreciation of your inherited property for tax purposes? The key lies in the depreciation for wear and tear (AfA). As an heir, you step into the 'footsteps' of the deceased and continue their depreciation. This means you take over the original acquisition or production costs and the existing depreciation rate. For properties built after 1924, the straight-line AfA is generally 2% per year.
An important point is that only the value of the building, not the land portion, is depreciated. A professional valuation of the inherited property helps accurately determine this portion and thus secure maximum depreciation. With a building value of €300,000, you can deduct €6,000 annually from your rental income. The correct application of the AfA is thus the foundation for your tax savings.
Advertising costs: Every expense counts for your tax return
In addition to depreciation (AfA), advertising expenses are the second major lever for reducing your tax burden. Every expense incurred to generate rental income reduces your taxable income. Many landlords miss out on real savings because they are not aware of all deductible items. Key advertising expenses include:
Ongoing costs: Property tax, insurance (e.g., liability, building), fees for property management.
Financing costs: Interest on loans taken out to finance the property.
Maintenance and repairs: Costs for renewing windows, repairing heating systems, or painting work.
Other expenses: Brokerage fees for tenant search, costs for advertisements, travel expenses to the property, and even tax consultancy fees.
Complete documentation of all receipts is crucial to fully leverage this potential. Knowing these items precisely helps you to determine the right rental price for your house and maximize your net returns. This lays the foundation for distinguishing between immediately deductible maintenance expenses and long-term depreciable production costs.
Preservation costs or production costs: A critical boundary
Did you know that major renovations within the first three years after acquisition can become a tax trap? The tax office strictly distinguishes between immediately deductible maintenance costs and capitalisable, acquisition-related production costs. The critical limit is 15% of the original building costs (excluding VAT).
If your net modernisation costs exceed this 15% threshold within three years, the total costs must be spread over the remaining useful life of the building, i.e., depreciated. You lose the advantage of deducting advertising expenses immediately in the year of payment. Therefore, precise planning and an accurate calculation of inheritance tax and building value are essential. This protects you from unexpected back payments and secures your liquidity. This strategic planning is also crucial in view of a potential sale.
Intention to Sell: The 10-Year Period as a Strategic Advantage
Another central aspect of the tax benefits of renting out an inherited property is the speculation period. If you sell the property, a speculation tax may be levied on the capital gain. The key period for this is ten years. The major advantage for heirs: The period starts not with the inheritance event, but with the original purchase date by the decedent.
If the deceased had owned and rented out the property for eight years, for example, as an heir you would only need to wait another two years to sell it completely tax-free. This "inherited" period is a significant financial advantage. Before making a decision about selling or renting, you should check this date. It greatly affects your long-term strategy and potential return.
Actively Manage Inheritance Tax: The Valuation Discount for Lettings
Even before you receive rental income, you can save taxes by deciding to rent out property. The inheritance tax law favours the provision of housing. For a property rented out for residential purposes, the tax office grants a valuation reduction of 10%. This means the property is assessed at only 90% of its market value for the calculation of inheritance tax.
With a market value of €500,000, the taxable base is therefore reduced to €450,000. Depending on your personal allowance, this reduction can decrease your tax burden by several thousand euros. This advantage explicitly applies only to rented properties and is a clear signal from the legislator. To legally benefit from this and other advantages, it is important to be aware of the pitfalls of the inheritance tax. The right strategy begins at the moment of inheritance.
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Renting out an inherited property is more than just a source of income – it is an effective tool for tax optimisation. By consistently utilising depreciation (AfA), fully deducting advertising costs, and adhering to strategic periods such as the 10-year holding period, you can transform a potential tax burden into a financial advantage. The 10% valuation deduction in inheritance tax provides the first positive incentive.
The key to success lies in thorough planning and precise knowledge of the numbers. An accurate property valuation is the basis for almost all tax calculations. Do not act on intuition, but make data-based decisions. If you are unsure how to correctly assess the value of your property or which costs are deductible, use tools like our ImmoGPT chat or a non-binding initial consultation. This ensures that you fully exploit all tax advantages when renting out your inherited property.
Additional useful links
The Federal Ministry of Finance offers comprehensive information on inheritance and gift tax.
Another article from the Federal Ministry of Finance explains the application of regulations for the valuation of real estate within the context of inheritance and gift tax.
The Federal Statistical Office (Destatis) provides content and data on the topic of housing.
A press release from the Federal Statistical Office (Destatis) also addresses the topic of housing.
The Wikipedia article on inheritance tax in Germany provides a detailed overview.
The Federal Agency for Civic Education (bpb) offers a brief explanation of inheritance tax in the economic lexicon.
FAQ
What are the main tax benefits of renting out an inherited property?
The three biggest advantages are: 1. A 10% valuation discount on inheritance tax. 2. The annual depreciation of the building's value, which reduces your taxable income. 3. The deduction of all incurred costs (e.g. maintenance, management, interest) as advertising expenses from rental income.
Do I have to pay tax on rental income from an inherited property?
Yes, income from rental and leasing must be reported in Schedule V of your income tax return. Your personal income tax rate will be applied to the surplus of income over advertising costs.
What happens to the speculation period if I inherit a property?
You take over the speculation period from the deceased. The 10-year period begins on the date the deceased purchased the property, not the date of inheritance. This significantly reduces the time you need to wait for a tax-free sale.
What expenses can I deduct as advertising expenses?
Deductible expenses include, among others: depreciation (AfA), interest on loans, property tax, repair and maintenance costs, insurance premiums, administrative costs, broker fees for finding tenants, travel expenses to the property, and account management fees for the rental account.
What is the difference between maintenance expenses and production costs?
Maintenance expenses (e.g. repairs) can be immediately deducted as business expenses in the same year. Acquisition-related production costs (extensive modernisations that exceed 15% of the building costs within the first 3 years) must be depreciated together with the building over its remaining useful life.
Is it always worth renting out an inherited property?
From a tax perspective, renting is often very advantageous. Whether it is worthwhile overall depends on factors such as the condition of the property, the local rental market, your management effort, and your personal financial goals. A <a href="/blog/vergleichsrechner-verkaufen-oder-vermieten-bei-erbschaft">comparison between selling and renting</a> can provide clarity.
