Property and capital gains in Germany: what you pay when you buy, rent out, hold and sell

Buying: transfer tax and acquisition costs

The buyer pays real estate transfer tax (Grunderwerbsteuer) on the purchase price – 6 % in Hessen, between 3.5 % and 6.5 % in other states – plus notary and land registry fees of roughly 1.5 to 2 % and, if a broker was involved, a commission that is by law shared with the seller for residential property. Together, acquisition costs of 8 to 12 % are normal. Transfer tax does not apply to gifts and inheritances or to transfers between spouses and in the direct line.

One decision at the notary determines your taxes for decades if you intend to rent out: the split of the purchase price between land and building. Only the building is depreciable. Contracts that allocate a defensible share to the building – supported by the official land value – produce a higher annual deduction than the tax office’s own formula, which tends to overweight land in cities like Frankfurt. This must be agreed in the purchase contract; it is very hard to fix afterwards.

Renting out: income, deductions, depreciation

Rental income from German property is taxable in Germany whether or not you live here – tax treaties allocate it to the country where the property is located. Residents include it in their return at their progressive rate; non-residents file a German return under limited liability, at the same tariff but without the basic allowance (§ 50 Abs. 1 EStG). Taxable is the surplus of rent over expenses. Deductible are, in particular:

• Depreciation (AfA) on the building: 2 % per year for buildings completed 1925–2022, 2.5 % before 1925, 3 % from 2023; a 5 % declining balance option for new builds started between October 2023 and September 2029. Depreciation is the largest deduction and depends entirely on the price split above.

• Mortgage interest – not principal – on loans used to finance the property, including loans taken abroad.

• Maintenance and repairs, deductible immediately, or spread over two to five years. Beware the 15 % rule: renovation costs in the first three years after purchase exceeding 15 % of the building cost are treated as acquisition costs and depreciated over decades instead.

• Running costs borne by the landlord: property tax, insurance, management fees, the non-recoverable part of the service charge, travel to the property, tax advice for the rental return.

A financed property typically shows a tax loss in the early years, which residents can offset against salary. Non-residents can offset it only against other German income. Renting to family members below market rent reduces the deductible expenses proportionally once the rent falls below 66 % of the market rate.

Holding: annual property tax

Property tax (Grundsteuer) is an annual municipal tax, reformed from 2025. Hessen applies a model based on land and building area weighted by a location factor; the municipality sets the multiplier. For a Frankfurt flat it typically amounts to a few hundred euro per year. Landlords may pass it on to tenants through the service charge if the lease provides for it. The assessment is based on a declaration owners had to file in 2022/2023; errors in the recorded areas persist every year until corrected.

Selling: the ten-year rule

Gains from selling privately held property are taxable if the sale occurs within ten years of the purchase (§ 23 EStG) – measured from notarial contract to notarial contract, to the day. After ten years the gain is entirely tax-free, however large. Within the period the gain is added to your other income and taxed at your progressive rate, up to 45 % plus surcharge. Two things surprise sellers:

• Depreciation is clawed back. The gain is calculated from the depreciated cost, not the price you paid. Eight years of 2 % depreciation on a 240,000 € building adds 38,400 € to the taxable gain.

• Inherited and gifted property takes over the previous owner’s clock. If your parents bought the house twelve years ago and you inherit it today, you can sell tax-free tomorrow. If they bought it four years ago, six years remain.

The owner-occupier exception

The ten-year rule does not apply if you lived in the property yourself either for the entire holding period or in the year of sale and the two preceding calendar years. The three-year test counts calendar years, not months: moving in in December 2024 and selling in January 2026 satisfies it. Renting the property out for even a few months before the sale forfeits the exception. A home you occupied while working in Germany and then sold after moving abroad can qualify if the sale follows the move without an intervening tenancy – but the timing needs planning.

Selling as a non-resident

Non-residents are taxable in Germany on gains from German property within the ten-year period (§ 49 Abs. 1 Nr. 8 EStG); after ten years, no German tax applies. Your country of residence may tax the gain regardless of the German holding period – the US, for instance, taxes worldwide gains of its citizens, with a credit for German tax paid; the UK taxes residents on worldwide gains with remittance rules for some. The German notary is not required to withhold tax, but the tax office learns of every sale through the notary’s notification, and a German return for the year of sale is due.

Structures: should internationals hold German property in a company?

German property companies (Immobilien-GmbH) pay around 16 % on rental income instead of the owner’s progressive rate, but lose the tax-free sale after ten years and trigger transfer tax when existing property is contributed. For most private international owners with one or two properties and a long horizon, direct ownership is simpler and, on sale, cheaper. Companies make sense for larger portfolios that reinvest rental income. Foreign holding structures add a layer of German scrutiny and rarely improve the outcome.

How tes tax supports property owners abroad

Steuerberater Florian Enders and the tes tax team advise on the purchase-price split before the notary appointment, prepare the annual German return for rental income – for residents and non-residents –, model the capital gains position before a sale and coordinate with your home-country advisor on credits and reporting. Fully remote, in English, with a written fee quote in advance.

Note: This page provides general information on German tax law. A binding assessment of your situation is only possible after engagement and review of your documents. We quote our fees in the initial consultation, before you commit.