Property tax in Germany — AfA, the 10-year rule, and what's deductible
The real tax mechanics of German property: §23 tax-free gains after 10 years, AfA depreciation (2/2.5/3% linear plus the new 5% degressive), which costs are deductible (interest, not principal), and the 2025 Grundsteuer reform.
Hold 10 years and the gain is tax-free
German property tax rewards patience, not flipping. A private sale gain is untaxed after a 10-year hold; depreciation (AfA) shelters rental income every year; but you deduct mortgage interest, never the principal. Here's how the pieces fit.
tax on a private gain after a 10-year hold (§23 EStG)
0%
Sell an investment property inside 10 years and the gain is taxed at your full progressive rate. Cross the 10-year line and it's tax-free. A genuinely owner-occupied home can qualify even sooner.
Rental income is not taxed at a flat rate. Under §21 EStG it's added to your other income and taxed at your progressive rate — up to 42-45% plus Solidaritätszuschlag. That makes every legitimate deduction (below) worth real money, and it's why AfA matters so much.
The 10-year rule (§23 EStG)
AfA — depreciation that shelters rental income
If you rent the place out, you can depreciate the building (never the land) against your rental income each year. This is Absetzung für Abnutzung (AfA).
| Provider | Rate | Applies to |
|---|---|---|
Linear — post-2022 builds Best | 3% / year | Residential completed from 2023 |
Linear — post-1924 builds | 2% / year | Most existing residential |
Linear — pre-1925 builds | 2.5% / year | Older residential stock |
Degressive (§7(5a)) Best | 5% of the declining residual | New-build residential contracted 1 Oct 2023 – 30 Sep 2029 |
- Rate
- 3% / year
- Applies to
- Residential completed from 2023
- Rate
- 2% / year
- Applies to
- Most existing residential
- Rate
- 2.5% / year
- Applies to
- Older residential stock
- Rate
- 5% of the declining residual
- Applies to
- New-build residential contracted 1 Oct 2023 – 30 Sep 2029
The degressive AfA under §7(5a) EStG is the interesting new lever: 5% of the declining residual value each year (so it's front-loaded — biggest deductions early), available for new-build residential where construction was contracted between 1 October 2023 and 30 September 2029. Model your yearly AfA in the AfA calculator.
Only the building depreciates, so you first split the price between land and building — the land share is never depreciable.
What's deductible (Werbungskosten) — and the interest trap
Deductible against rental income
- Mortgage INTEREST (the interest portion of each payment)
- Maintenance and repairs (Instandhaltung)
- Property management (Hausverwaltung) fees
- Insurance on the building
- AfA depreciation on the building
NOT deductible
- Mortgage PRINCIPAL — repaying the loan is not an expense
- The land portion of the price (via AfA)
- Costs of a purely owner-occupied home you don't rent
The most common newcomer error: treating the whole mortgage payment as deductible. Only the interest is a Werbungskosten; the principal is you buying the asset, not an expense. Early in a loan the payment is mostly interest (good for deductions); later it's mostly principal (less shelter).
Grundsteuer — reformed from 1 January 2025
Everyone who owns German property pays annual Grundsteuer (land/property tax). A nationwide reform took effect 1 January 2025, changing how the bill is computed:
A quick word on the ETF alternative
Because property income is taxed at your full rate, it's worth knowing the contrast with a EUR equity ETF: those are taxed at a flat 26.375% Abgeltungsteuer (plus Vorabpauschale prepayment; the 2025 Basiszins is 2.53%), with a 30% Teilfreistellung on equity funds. Different regime, different effort. The trade-off is the whole subject of where immigrants should invest.
Do this at tax time
Split price into land vs building
Only the building depreciates via AfA.
Pick the right AfA rate
2% / 2.5% / 3% linear, or 5% degressive for qualifying new-builds.
Separate mortgage interest from principal
Your bank's annual statement (Zinsbescheinigung) shows the split.
Track the 10-year clock
The tax-free line under §23 runs from the notarised purchase date.
Estimate your annual depreciation in the AfA calculator, and if you're weighing this against renting, revisit the rent vs buy guide.
Where the numbers come from
Holding-period exemption (§23 EStG), rental income (§21 EStG), and depreciation including the degressive §7(5a) AfA are set in the Einkommensteuergesetz.EStG The Grundsteuer reform effective 1 January 2025 is administered by the tax offices.Grundsteuerreform Capital-income taxation and Teilfreistellung via the federal tax authority.Bundeszentralamt für Steuern This is educational, not tax advice — for a real filing, a Steuerberater's fee is itself deductible. Figures verified 2026-07-18.
Last updated: 2026-07-18