Rental income is taxed similarly to typical employee wages and salaries and is referred to legally as “income from renting and leasing” (Einkünfte aus Vermietung und Verpachtung).
Rental income can be declared on Form V of one’s tax return and the amount of tax that must be paid on this income varies depending on the landlord’s individual tax rate (Steuersatz). As with all income, deducting expenses such as income-related expenses (Werbungskosten) and allowances (Freibeträge) help reduce the tax burden.
What counts as rental income?
Among other things, rental income includes income from:
- Renting a house
- Leasing a condominium
- Leasing an apartment in a house
- Leasing a vacation apartment
- Leasing real estate
- Subletting a room in one’s own apartment
Rental income consists of both the price of rent and additional utility costs that are paid by the tenant. Note: Tradespeople’s rental income is taxed as business income (Gewerbeeinkünfte) and are legally considered part of their business assets.
Allowances for rental income
All landlords are entitled to statutory allowances (Freibeträge). The most important and notable allowance is the basic tax-free amount (Grundfreibetrag) which every resident of Germany is entitled to. This amounts to 9,744 euros for singles and 19,488 euros for married couples as of 2021 (previously 9,408 euros and 18,816 euros respectively). Any income earned up to this amount is not taxed, your rental income & all additional income is only taxed if it exceeds the tax-free amount (plus any possible child allowances).
Taxing income from sublets
Those who earn profits from subletting typically have to pay taxes unless they meet certain exemption limits.
Traditional employees, civil servants, and retirees can earn an additional 410 euros on top of their income per year without having to pay additional taxes on it. Supplementary income between 410 and 820 euros per year is taxed at a reduced rate. This allowance is called “compensation for hardship” (Härteausgleich) and is automatically applied by the tax office (Finanzamt). If your supplementary income exceeds 820 euros, it will be taxed in full. Please note that supplementary income exceeding 410 euros per year will oblige you to file a tax return.
If you are temporarily renting your apartment that is used by you, there is a higher exemption limit of 520 euros. However, in the case of higher income minus income-related expenses (Werbungskosten), taxes must be paid on the entire income. These expenses could include costs for advertisements as well as cleaning costs while subletting.
If a landlord doesn’t have intention of making a profit off of renting and subletting, it can be classified as a “hobby” (Liebhaberei) by the tax office. In this case, accidental profits do not have to be taxed – however, in this case, losses that arise from the rental are also not recognized for tax purposes. In addition, the tax office does not typically recognize unlimited tenancies as a hobby.