When are you exempt from rental income tax?

When are you exempt from tax on rental income in Germany?
(Steuerfreiheit bei Vermietung)

In Germany, rental income is generally taxable. However, there are several situations in which a landlord can be partially or completely exempt from paying income tax on rental income.

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1. When you do not make a real profit (expenses ≥ income)

If your annual rental expenses are equal to or higher than your rental income, there is no taxable profit.

Typical expenses include:

• maintenance and repairs

• interest on property loans

• local property tax and running costs

• depreciation (AfA) on the building

If these costs are ≥ your annual rental income:

• the result from renting is €0 or even a loss,

• you pay no income tax on the rent,

• and the loss can often be offset against other income (e.g. salary).

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2. Renting to relatives at a reduced but reasonable rent (≥ 66%)

If you rent your property to a relative, such as:

• your child,

• your parents,

• your sibling,

the following applies:

• If the agreed rent is at least 66% of the local market rent (ortsübliche Miete):

  • the rental is treated as fully taxable in the normal way,

  • you may deduct your rental-related expenses (Werbungskosten) in full.

• If the rent is below 66% of the local market rent:

  • part of the use is treated as private use,

  • you may not deduct all expenses in full – only a limited proportion is allowed.

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3. If your total annual income is below the basic tax allowance

Your overall income is also important. For 2025, the basic tax-free amounts are:

If your total income, including rental income, is below this allowance:

• you pay no income tax at all,

• your rental income is therefore effectively tax-free, even though it is in principle taxable income.

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4. If you use the property as your own home (Eigenbedarf)

If:

• you live in the property yourself, or

• your children use it as their home,

then:

• there is no rental income in the legal sense,

• you therefore have no taxable rental income,

• and no income tax arises in respect of that use.

Note: In this case, you also generally cannot deduct rental expenses as Werbungskosten, because from a tax perspective you are not renting out the property.

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5. Tax-privileged rentals (rare, case-by-case)

In certain special situations, rental income may be fully or partly tax-exempt, for example:

• renting to recognised non-profit organisations,

• certain social housing models under specific legal schemes,

• some forms of leasing to churches or charities.

These situations are usually assessed individually by the tax office (Finanzamt), and professional advice is strongly recommended.

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Do you still have to declare the rental?

Even if no tax is payable, the rental must usually be reported in your income tax return using the form Anlage V (rental and leasing).

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Key terms

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Summary

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The editorial team of our website strives to provide accurate information based on thorough research and multiple sources. However, errors may occur or some details may not be fully confirmed. Please treat the information in this article as an initial guide only and always consult the tax office or a qualified tax advisor for binding and up-to-date advice.