Real estate · 2 min read

Saving Tax with Real Estate: How Owners Save with Tangible Assets

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.

Since the rise in interest rates in spring 2022 at the latest, real estate as an investment has been attracting interest. Anyone who thinks of large companies when picturing the typical property owner overlooks the majority of actual owners: high-earning employees and the self-employed account for the largest share of the German residential market, ahead of institutional investors. We explain the reasons behind acquiring let property and how a property can help you save tax every year.

Neo Capital supports wealthy employees and self-employed individuals in structuring investments and assets in a tax-optimised way. Together with our clients, we convert tax burdens into private wealth in order to advance their own retirement provision in good time.

High income as a reason for let property

With a let property, the flat is made available to a tenant, generating income from letting and leasing – ideally, the rental income covers interest and repayments, which keeps your own burden from top-up payments to a minimum. Most investors finance their investment property with around 10% equity plus ancillary costs. To be able to cover monthly costs in the event of top-up payments or an unlikely loss of rent, a correspondingly high income is the foundation – high-earning employees and the self-employed are often already well above this threshold and have unknowingly been forgoing the tax advantages of a property for years, not least through the leverage effect of borrowed capital, which can be optimally used via bank financing and taken into account for tax purposes.

Saving tax on acquisition, ownership and sale

As soon as a tenant has moved into the let residential property, numerous tax advantages apply for landlords under German tax law. Depreciation for wear and tear (AfA, Absetzung für Abnutzung) is the biggest advantage: each year between 2–9% of the purchase price less land costs is depreciated, which can result in an annual tax cashback in the four- to five-figure range. In addition to the acquisition costs, deductions also cover estate agent and management costs as well as expenses for tax advisers and repairs. The sale is also favoured for tax purposes: after a holding period of 10 years, the property can be sold tax-free – to third parties or within the family. This model is particularly popular with listed buildings (Denkmalschutz-Immobilien), where renovation and modernisation costs are depreciated at 9% per year over a 12-year holding period.

Neo Capital: reducing taxes sustainably with real estate

Deducting an investment from your taxes while waiting for a tax-free sale including value appreciation – this is what makes real estate an attractive investment for high-earning employees and the self-employed. We advise our clients to get started on the topic in good time and, in cooperation with our network of tax advisers, give clear recommendations for action. Taking your individual situation into account, we determine the optimal type of investment and advise you on the advantages and disadvantages of new builds, listed buildings and available existing properties.