4 Min.

Tax Return: Renting out your flat temporarily (Zwischenmiete)

The majority of people living in Germany rent out houses.

There comes a point in life where you cannot be at your own home for a long time due to various reasons. Leaving the home idol for this period of time hence becomes a waste. After all, non-use continues to be paid dearly through taxations.

Whether it’s an Erasmus exchange program, a business trip lasting several weeks or just a long holiday, there is no reason not to make the property available to others for a period of time and make some money. Turning into a landlord, however, is accompanied by some duties. In this article, we will feature what some of these duties are and what should be considered from a tax law perspective.

Renting a Flat Temporarily

More and more people are no longer staying in hotels, preferring to use private residences and properties. This is often cheaper for both parties in the long-term. This said there are some tax obligations that one has to fulfill. The transition from tenant to the landlord is usually fast and easy. Anyone earning revenue from renting or leasing is obligated to fulfill several duties. If the income is not properly taxed, the consequences are imminent.

When is Tax Due?

Income from rent must be recorded in the income tax return. As a rule, these incomes are no longer exempted from taxation. The law requires that rental income is taxed alongside other incomes. However, there are some exemptions to this rule. For example, if the total income does not exceed €9,000, there are no taxes charged at all. This value refers to the amount accumulated over a whole calendar year. Rental income below €520 also remains generally tax-free.

Those running rental businesses that generate amounts less than these figures can enjoy tax-free incomes as the law provides.

How high is the tax charged?

Of course, this cannot be answered on a flat-rate basis, since several factors need to be taken into account. Basically, only the profit from rental income is taxable. This means that expenses incurred in connection with a rental property are also taken into account for tax purposes. This is only fair as the profit is already reduced by the rental maintenance expenses.

If the revenues and expenditures are congruent, the tax liability is cancelled out. In the case where it comes close to losses, the tax burden lowers accordingly. The tax system is flexible and understanding of its citizen’s income cash flows. As such there are minimal cases of tax evasions by the citizens renting out property which is a positive thing for both the state and its citizens.

Zwischenmiete versteuern

What else is there to note?

Rental property is also subject to VAT as with any other business or commodity. The exceptions to this are small businesses, which registered less than €17,500 in the previous year. It is considered that incomes less than €17,500 are better left untaxed due to the sustainability and profitability of businesses. Businesses registering more than €17,500 are obligated to pay VAT as required by law.

It is particularly important to inform the owner of the apartment or house that the property is rented out to third parties for a certain period of time. Without this consent, the agreement is threatened and in the worst case, there could be a termination of the agreement without notice. You also have to be available around the clock in case of any issues that might arise. With this said, the owner has no claim to any profits derived from the rented property. The only money due to the owner is the agreed amount of rent. The profits derived from renting out to third parties are excluded here.

What matters on rental income?

Basically, it does not matter where the rental income comes from. The structure of the building or apartment is not taken into account, only that the income derived from the property is relevant. Depending on the amount derived, taxation is applied. This is, of course, considerate of the property’s maintenance costs which are subtracted from the profits derived from the rental income.

It is, however, the duty of the landlord to ensure that the rental property is maintained to standard. Depending on the terms of the contract agreed upon by the tenant and the landlord, any damage caused to the property by the tenant should automatically be billed to the tenant.

Rental income is obtained from the following examples:

  • Renting a house
  • Renting a condominium
  • Renting an apartment in the house
  • Renting an apartment
  • Lease of land
  • Subletting a room in your own apartment

Rental income consists not only of the rent agreed upon but also of various additional costs, which the tenant pays depending on the leasing contract.