Inheriting a property presents you with a choice: sell, use it yourself, or rent it out? Many people underestimate the financial benefits that renting can offer. This article shows you how you can not only secure monthly income with an inherited apartment but also strategically build wealth.
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The topic briefly and concisely
Stable Returns: Renting out an inherited apartment generates regular income and offers protection against inflation, with average gross yields of 3.5-4.0% in many cities.
Tax advantages: Rented properties benefit from a 10% valuation discount on inheritance tax and allow for the deduction of expenses (depreciation, maintenance).
Long-term wealth creation: You retain an asset with stable value within the family and benefit from future increases in value, while the testator's speculation period continues.
Have you inherited a flat and are wondering what the smartest next step is? This decision has far-reaching financial implications. While selling promises quick liquidity, renting out an inherited flat often offers a more sustainable strategy for long-term wealth building. It's about generating passive income, taking advantage of tax benefits, and securing the property's value for the future. With the right approach, you can turn your inheritance from a complex obligation into a profitable investment. We guide you through the key benefits and show you what to watch out for.
Advantage 1: Generate stable and inflation-protected income
The most obvious advantage of renting out an inherited apartment is the creation of a regular income stream. This monthly rental income can boost your household income by several hundred euros. In major German cities like Cologne or Berlin, gross rental yields often range between 3.6% and 4.0%. In other cities like Hagen, yields of over 5.3% can even be achieved.
These ongoing earnings also provide effective protection against inflation. While cash assets lose purchasing power, rents tend to rise with the overall rate of inflation. This way, you secure the real value of your assets in the long term. A data-driven analysis helps you determine the achievable rent accurately, as enabled by our rental yield calculator. This lays the foundation for a sound calculation.
Advantage 2: Strategically optimise inheritance and income tax
The rental of an inherited property offers significant tax benefits. For inheritance tax, rented residential properties benefit from a 10% valuation reduction. This means the tax office only assesses the value at 90%, which directly reduces your tax burden.
Additionally, as a landlord, you can continue to claim the acquisition and production costs of the testator in the form of depreciation (AfA). Typically, 2% of the building costs can be deducted from tax annually. The following items can also be claimed as advertising expenses:
Interest on loans taken out to finance renovations.
Property tax and other ongoing public charges.
Costs for property management and maintenance.
Expenses for finding tenants, such as advertising costs.
These deductions significantly reduce your taxable rental income. A precise understanding of the tax benefits of renting is crucial for maximizing your net returns. Correct tax treatment is a complex field that requires careful planning.
Advantage 3: Retaining a long-term asset within the family
A property is more than just a source of income; it is a tangible asset that gains value over the long term. By renting it out, you keep the apartment within the family and benefit from future value appreciation. Historically, real estate has demonstrated high resilience to crises compared to capital markets.
This way, you create an asset that can be passed down through generations. Instead of a one-off payout from a sale, you build a sustainable investment. Choosing to rent is a decision for long-term, strategic wealth building. To understand the current market value and potential of your property, a neutral property valuation is essential. This allows you to make your decision based on a solid data foundation.
Advantage 4: Gain flexibility through the speculation period
A critical but often overlooked advantage concerns the speculative tax. Profits from the private sale of real estate are taxable if less than ten years have passed between purchase and sale. However, for an inherited property, this period does not begin with the inheritance event but with the original purchase date by the deceased.
If the deceased had purchased the property more than 10 years ago, you can sell it immediately tax-free. This regulation gives you maximum flexibility. You can rent out the property for a few years, generate rental income, and later, once the 10-year period has passed, sell it tax-free. This way, you combine ongoing income with a tax-optimized exit strategy.
Advantage 5: Accurately calculate costs and obligations
Successful renting requires realistic budgeting. As a landlord, you are responsible for the maintenance of the property. Experts advise planning reserves for maintenance of about 1% of the property's value annually. For a property valued at €300,000, this would amount to €3,000 per year.
Additionally, you should consider the risk of rental loss, which covers the risk of vacancy or payment defaults. For residential properties, a rate of 2% of the annual gross rent is usually applied. A precise overview of your duties as a landlord protects you from unexpected expenses. Thorough calculation is the key to profitability.
Advantage 6: Increase in value through targeted modernisation
An inherited apartment offers the opportunity to increase its value and rental income through targeted investments. Energy-efficient renovations or bathroom modernisations can significantly enhance its appeal to tenants. After a modernisation, you can apportion up to 8% of the costs to the annual rent.
Expenses for modernisation can, under certain circumstances, be immediately deducted as advertising costs. Pay attention to the 15 percent limit in the first three years after acquisition. If the net costs for repairs exceed 15% of the building's acquisition costs, they must be depreciated over the useful life. A guide for renovations can help identify the right measures. This not only increases the rental income but also the resale value.
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Managing a rental property requires time and expertise. You need to handle rental contracts, utility bills, and communication with tenants. Many heirs underestimate this effort, which can quickly become a burden.
This is where a professional property valuation and consultation can make all the difference. A data-driven analysis from Auctoa shows you precisely what return you can expect. Our ImmoGPT chat also answers your initial questions quickly and easily. This way, you make an informed decision about whether renting is the right path for you and avoid costly mistakes from the start.
Conclusion: A strategic decision for your future
Do I need to pay tax on rental income from an inherited flat?
Yes, rental income from an inherited flat must be taxed as "income from renting and leasing" at your personal income tax rate. However, you can offset all associated costs (advertising costs), which significantly reduces the tax burden.
What happens to the tenancy agreement when I inherit a flat?
If you inherit a rented flat, you automatically assume the existing tenancy agreement. All rights and obligations of the previous landlord are transferred to you. Termination by the tenant is only possible under the legal requirements, for example, in case of personal need.
Can I sell an inherited flat immediately without paying taxes?
A tax-free sale is possible if the deceased purchased the property more than ten years ago. The ten-year period begins with the purchase by the deceased, not with the inheritance. Alternatively, the sale is tax-free if the property was used exclusively by the owner in the year of sale and the two preceding years.
What are the average maintenance costs for a rented flat?
As a rule of thumb, landlords should allocate approximately 1% of the property purchase price annually as a maintenance reserve. For a flat valued at €250,000, this would amount to €2,500 per year. These costs are tax-deductible as advertising costs.
What is the benefit of the valuation discount in inheritance tax?
For rented residential properties, the legislator grants a valuation discount of 10% on the market value. This means that only 90% of the value is used to calculate inheritance tax. This can significantly reduce your tax burden or even bring you below your personal tax allowance.
What is the difference between selling and renting in a community of heirs?
In a sale, the proceeds are simply divided among the co-heirs, which is often the easiest solution. In renting, all co-heirs must act jointly as landlords and make decisions unanimously, which can lead to conflicts. A clear contractual agreement among the heirs is essential here.
Additional useful links
Statistisches Bundesamt (Destatis) provides information on construction price indices and real estate price indices in Germany.
The Federal Ministry of Finance offers comprehensive information on inheritance and gift tax.
The Deutsche Bundesbank publishes statistics and indicators on the residential real estate market.
The Federal Court of Justice (BGH) offers a database of current case law.
The Federal Agency for Civic Education (bpb) provides an article on the issue of housing shortage.
ELSTER offers a help page on the topic of 'Immovable Property', relevant for tax returns.
FAQ
Do I have to pay tax on rental income from an inherited apartment?
Yes, rental income from an inherited apartment must be taxed as 'income from letting and leasing' at your personal income tax rate. However, you can offset all related costs (advertising expenses), which significantly reduces the tax burden.
What happens to the lease if I inherit an apartment?
If you inherit a rented apartment, you automatically enter into the existing rental agreement as the heir. All rights and obligations of the previous landlord are transferred to you. Termination of the tenant is only possible under legal conditions, e.g. in the case of personal need.
Can I sell an inherited apartment immediately without paying taxes?
A tax-free sale is possible if the deceased purchased the property more than ten years ago. The ten-year period starts with the purchase by the deceased, not with the inheritance. Alternatively, the sale is tax-free if the property was used exclusively by the owner in the year of sale and the two preceding years.
What are the average maintenance costs for a rental apartment?
As a rule of thumb, landlords should plan to set aside around 1% of the property purchase price annually for maintenance reserves. For a property worth €250,000, this would amount to €2,500 per year. These costs are tax-deductible as business expenses.
What is the advantage of the valuation discount for inheritance tax?
For leased residential properties, the legislator grants a 10% valuation discount on the market value. This means that only 90% of the value is used for calculating inheritance tax. This can significantly reduce your tax burden or even bring you below your personal allowance.
What is the difference between selling and renting in an heir community?
In the event of a sale, the proceeds are simply divided among the co-heirs, which is often the easiest solution. In the case of renting, all co-heirs must act together as landlords and make decisions unanimously, which can lead to conflicts. A clear contractual agreement among the heirs is essential here.
