# Clarification Needed: Calculating Taxes and Rental Income for Buy-to-Let Property Investment in Berlin

I hope you're all well. I need some guidance regarding a financial scenario I'm considering. I'll break it down as clearly as possible to ensure I get accurate advice.

Let's simplify things by discussing monthly gross payments rather than annual ones.

I currently earn €8,750 each month in Berlin. Unfortunately, taxes are taking a significant portion of my earnings, around €2,417.53, which equates to approximately 27.64% of my income. In addition, Berlin's progressive tax structure leads to further deductions such as TK health insurance, care insurance, and pension insurance, totaling €1,282. This means a total of almost €3,700 is deducted monthly, leaving me with a net salary of €5,050.

Now, I'm considering investing in a buy-to-let apartment valued at €285,000. Assuming I take out a loan at the current interest rate of 4.5%, I aim to make monthly mortgage payments of €1,500. I also intend to rent out the apartment, generating a rental income of €1,500 per month. This brings my total monthly income to €10,250.

Given that I fall under tax Class 1, I'm aware of the provision allowing deduction of interest payments from gross income when filing taxes. The monthly interest amount on my mortgage is calculated to be €994.

By subtracting the interest amount, my monthly gross income is reduced to €9,256. Here's where I need assistance: I'm uncertain about the exact amount of tax I'll be liable for. Based on my calculations, applying a 27.64% tax rate would yield approximately €2,558. This implies an increase of €141 compared to my initial tax estimate.

Thus, my estimated rental income would be €1,500 - €141 = €1,359. This scenario raises concerns because, even after the investment, I'd still need to supplement the property's finances with €141 of my own funds each month.

To ensure I have a clear understanding, I've provided all relevant figures. Could someone please review my calculations and offer guidance? I want to be certain that I'm making accurate assessments before proceeding. Your insights would be greatly appreciated.

• Thanks for so detailed question -- real sample how to do such deal. BTW, IngBank proposes 1% Tilgung for apartaments in small houses (till 10 flats probably). And check24 allows to find lowest Zins in your region at a day. E.G. some banks propose 3.6%. Check DeutscheBank or PostBank. And yes, furnished ROOMs allow you to rent out each room for 6+ months if Grungris allows to isolate them. Sep 8 at 8:49
• I believe with 105k a year salary you will pay 45% income tax. Sep 8 at 9:04
• @EugeneKaurov - Right, 45% is the deduction but includes other stuff, such as health, care, pension, etc., insurance. Not just the tax! Sep 28 at 4:29

No, you cannot apply the average taxe rate of 27% to additional income. However, good news, you can also depreciate your apartment.

The tax is progressive: for 2023, you pay 0% on the first 909€ income (per month), 14% on the next 50€ per month, 14.1% on the next 50€, 14.2% on the next 50€ and so on. For anything above 5200€/month, you pay 42% tax, but only for the amount above that value. The average tax rate will be lower, in your case apparently 27%.

But since you are in the 42% tax bracket, any additional income will be taxed at that rate, that includes rental income. You will also have to pay Solidaritätszuschlag (above a yearly income of around 75k€), which is about another 2% (it's also progressive). If you pay church taxes, they will also apply here.

You can deduct the interest (and some other costs related to the property, e.g. repairs) from that rental income. You can also depreciate the property (AfA), which is 2% of the value of the flat (but not the cost of the land); if the house was built in 2023 or later, it is 3% per year. Assuming 2% and maybe an apartment value of 250k, that is 415€ per month.

Whatever is left over is taxed at your personal tax rate, in your case 42% + 2% Solidaritätszuschlag. So if your rental income is 1500€, deducting the interest rate of 994€ and a depreciation of 415€, you pay 44%*91€=40€ in taxes, which is probably neglectable. (You may also want to ask a tax adviser at least in the first year, they may find other things, e.g. you can also deduct costs for the real estate agent. And maybe even do that before you buy, to do the calculation with you.)

However, please note that the amount you get from your tenants is not the amount you earn, as you have costs (e.g. insurance, repairs, vavancies and so on). If it is an apartment, this is mostly covered by the Hausgeld (which is usually mentioned in the offer, and can be up to several hundred €/month). Some of those costs you can get from your tenants as part of the Nebenkosten (e.g. costs for water, waste disposal, cleaning, ...), some of it you can't (repairs, management costs, ...).

In general though, it is hard to break even (e.g. to not have to supplement the property), otherwise, a lot more people would just buy and not rent. If a tenant could buy the flat and pay 1500€ to the bank instead of 1500€ to you, and eventually own the apartment, they will usually prefer to do it.

So you may want to verify your values and check for hidden costs (like Hausgeld), and especially the expected rental income, as for Berlin, 1500€ net rental income is relatively high for a 285k€ property (unless you got a really good deal).

• Decision to buy or rent isn't just dictated by the ability to "break even". Not everyone can get access to 285k in credit and for a city like Berlin i would expect that to be on the lower side of property prices. Plenty of stories going around of people being refused mortgages with monthly payments lower than the rent they are already paying. Aug 10 at 10:39
• @bracco23 Yes, of course not everyone can or wants to buy, and I shortend that thought (the actual question was about taxation, so this was just a side note), but in general, if there were no risks (which are also part of the costs), no supplement costs and no opportunity costs (e.g. a downpayment could currently make risk free 3-4%), no bank would need to deny a mortgage to anyone who can pay rent. If they do, it's probably not risk free. I just wanted to make OP aware that buying a flat is not necessarily free money, so there might be something they missed. If not, even better. Aug 10 at 11:41
• Appreciate the advice, thank you so much @Solarflare! I actually have won a bid for a 52m2, 2-room apartment in prime Mitte, 520m from museum island. Owner started private bidding from really low, 200k, don't know why. Market lacks competition probably due to high (4.5%) interest rates. I'm in a spacious 4-room apartment now, so transitioning to a smaller space isn't feasible. I'm aware of the potential; a friend pays 1800 euros for 60m2 here. Aiming for 1500 euros in rent seems realistic for me. Overall, I am excited! and aiming for short-term tenants and make apartment furnished Aug 19 at 20:46
• @Alok Nath Congratulation! You did cool deal. Remember that short-time still should not be daily rent -- individuals are allowed to rent their apartments on daily basis till 2 months in many German cities. Sep 8 at 8:45
• @EugeneKaurov AfA is based on the value you paid (minus the part for the land, as the tax office assumes that land keeps its value), and will not grow on it's own (it can increase if you do e.g. large renovations, though). Sep 8 at 16:03