Saving Tax with New Builds: How Investors Reduce Their Costs through Tax Advantages
This guide refers to German law and the German tax system. It is a translation of our German original and does not replace individual tax or legal advice.
In view of the current market phase, the property market remains one of the most attractive options for investors when it comes to secure, long-term wealth building. Anyone currently looking into new construction or the acquisition of rental flats can benefit from various tax advantages. In this article, we explain why new builds remain one of the most sustainable forms of investment in 2024 and what you can expect as an investor from a tax perspective. This article does not replace tax advice and is merely intended to provide an outlook on the opportunities for attractive investments in new-build properties.
As independent financial advisers and experts in wealth building, Neo Capital supports high-earning employees and entrepreneurs in building long-term investment strategies. Through our analytical decision-making and cooperation with your tax adviser, we reduce your individual tax burden by four- to six-figure amounts and convert these gains into your private wealth. Building a real estate portfolio is one way of building wealth.
The difference between existing properties and new builds
Anyone wishing to reduce their taxes with let properties and deduct the costs incurred for tax purposes can choose between different types of property. While classic apartment buildings are often subject to renovation work or at least increased maintenance, new-build properties and flats being occupied for the first time are among the lowest-risk asset classes, tending to offer the greatest planning certainty. The reason for this is that hardly any renovation or maintenance is due over the next 20 years and all of the legislator's requirements were met during construction. Furthermore, especially in tight rental markets in popular metropolitan areas, new lettings are only exempt from the local rent index (Mietspiegel) in the case of new builds and fully refurbished existing properties. All other property classes must either adhere to the often low rent levels or expect harsh legal consequences, which can even lead to penalty payments several years retroactively. In addition, high-quality new builds are often excellently equipped in terms of energy efficiency. This is increasingly important for landlords, because for rental flats the costs of the CO2 price are split between tenant and landlord: the worse the building is insulated, the greater the share that landlords have to bear. The balance: almost 36 per cent of residential properties in Germany have an energy efficiency class worse than E. As a result, high costs for energy-efficient renovation will fall on many owners in the coming years. Following the German federal government's agreement on the budget for the coming year, the price for emitting climate-damaging carbon dioxide (CO2) from fossil fuels will be raised more sharply than originally planned: from the current €30 per tonne of CO2 to €45 from 1.1.2024 instead of just €40 — and then to €55 in 2025. While care home properties and listed properties are subject to numerous tax uncertainties and challenges, investors in new-build properties need not worry about the useful life or possible ambiguities with the tax office (Finanzamt). Rather, the taxpayer reduces their tax burden through the depreciation of their investment and repays their investment loan through the rental income generated. These aspects lay the foundation for long-term wealth building and sustainable tax savings, which are particularly attractive at the marginal tax rate from €66,761 of taxable income (zvE, zu versteuerndes Einkommen). The capital freed up and any refunds can be used after a short time to buy further properties, which drives personal wealth building and increases liquidity. With the support of a suitable tool or tax adviser, these savings can already be entered during the year as an allowance on your wage tax record (Lohnsteuerkarte).
New builds vs. listed and care home properties
Choosing the right property and the optimal location is decisive for the yield and return of the investment. Since investment advisers and property brokers frequently put forward listed properties and care home properties as first-class investment options, we would like to point out the extensive risks and disadvantages of these two asset classes. You can find more information on the uncertain tax structures and the likelihood of rental income losses with listed and care home properties in the following articles:
- Depreciation of Listed Buildings: The Risk for Investors
- Returns from a Care Home? The Sensible Alternative to Care Home Investments
A high-earning employee or entrepreneur, amid the stress of their work, rarely wants to deal with the maintenance and management of properties. Security-conscious property investors looking for such an almost passive investment will find an attractive solution in the new builds of most developers. Just as with properties in prime locations, local management is handed over. In this way, in addition to the renovation and maintenance risk, investors also eliminate the effort of actively managing their investment. Combined with the right location, the real estate investment thus becomes a tax-attractive self-runner. Value appreciation and ongoing rent adjustments, together with a severe housing shortage, ensure that owners enjoy an attractive return and the opportunity of a tax-free sale with massive value appreciation after ten years.
Neo Capital: new-build flats in Berlin and other prime locations
No form of investment in Germany is as privileged as the let property for building wealth. Investors in particular who want to benefit from the ongoing tax advantages of depreciation and low upkeep effort should take advantage of this. Anyone wishing to start with the highest possible rental yields and little equity should turn to investment advisers with their own off-market portal. Here, an exclusive selection of attractive properties is withheld from the open market and arranged exclusively for investors. Unlike public platforms or private sellers, experienced advisers offer the security of buying a vetted, high-yield investment. Would you like to look more closely at new builds as an investment? Our experts at Neo Capital are at your side as independent advisers in building your real estate portfolio. Together with our network of experts, including notaries and tax advisers, we develop a concept that can help you acquire further properties with optimal returns on equity over the coming years. To this end, we advise you comprehensively and individually and in cooperation with your tax adviser. Through the exclusive brokerage of new-build properties in prime locations, we enable our clients to build wealth efficiently and sustainably over the long term.