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There seem to be big tax benefits of renting a newly bought apartment in Germany rather than staying in it in the first year.

Say, you want to buy an apartment in Bavaria for 300.000€. You have to pay a usual agent fee of 3,57%, Grunderwerbsteuer of 3,5%, Notarkosten of 1,50 % and Grundbucheintrag of 0,50%. So, your extra costs of 9,07% are ~27.000€. If you bought your apartment in Nordrhein-Westfalen, your Grunderwerbsteuer would be 6,5%, which would make your extra costs 12,07%, hence ~36.000€.

Additionally, you pay the interest on this apartment. The first years of the mortgage, interest part of the payment is the highest. Say in the first year you pay 10.000€ interest, in the second year 9.000€ etc.

A standard price depreciation rate claim is 2% of the purchase price. This is another 6.000€.

From what I understand, all of this money is tax-deductable only if you rent your apartment!

So in our example, in the first year of the purchase, your costs are 27.000 + 10.000 + 6.000 = 43.000€. In the second year, your costs are 9.000 + 6.000 = 15.000€.

Now let's say you are single and you make 100.000€ a year. Which means you pay around 25.000€ in income tax according to progressive income tax law. If you rent your newly bought apartment for 10.000€ a year, your income increases to 110.000€ a year.

In the first year since the purchase, your costs are 43.000€, so your income decreases to 110.000 - 43.000 = 67.000€. Your new progressive income tax will be then around 12.000€. So, you get 25.000 - 12.000 = 13.000€ cash back from Finanzamt.

In the second year since the purchase, your costs are 15.000€, so your income is now 110.000 - 15.000= 95.000€. The progressive income tax will be then around 23.500€. 25.000 - 23.500 = 1.500€ cash back from Finanzamt. Not a lot of incentive to rent. You can rather stay at your home.

Remember, you collect money from your tenant? You can use it to rent another equivalent apartment in the first year, so no extra costs to your pockets.

In our example, you get 13.000€ cash from Finanzamt in Bavaria (~15.000€ in lands with higher Grunderwerbsteuer).

So, am I correct that these significant tax benefits are available in Germany for renting out a newly bought apartment for 1 year before moving into it? Do I understand the tax mechanics correctly? Or am I missing something?

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  • I don't know German tax legislation - after converting from rental use to personal use, do you need to 'give back' tax deductions you previously received? As an example in Canada, you would need to potentially suffer a capital gain on increase in value between the periods, and also likely would need to 'recapture' the sum total of depreciation taken to date. Commented Mar 11 at 14:15
  • Also, I highly doubt taxes paid to purchase property are immediately deductible against your income in the first year. Rather, they probably just increase your 'cost base' for the property in terms of how future gains / depreciation are calculated. It seems like this is just a lot of conjecture on your part, to be frank. Commented Mar 11 at 14:17
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    It seems highly likely chatGTP is unreliable for specific tax questions. Don't rely on chatGTP for technical guidance like this [I have asked several questions to test it on Canadian tax, and results have varied between 'misses critical exceptions or qualifiers' and 'comes to a dead-wrong conclusion']. More to the point - have you ever heard of anyone doing what you are saying? ie: renting out for the 1st year to take advantage of the tax benefits? I am not at all a German tax expert, and 5 minutes of googling was not helpful, so I can't speak to accuracy, but this just feels naive. Commented Mar 11 at 14:41
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    Your question implies quite that you know a new way to do something that it seems no one else is doing. Yet, you do not seem to have a strong understanding of the mechanics. Rather than wording your question like "Clearly this option is incredibly good, and I want to know - should anyone ever act differently than the new method I am proposing?", I suggest you could significantly shorten the question and get more applicable answers, by revising as just "Am I correct that these tax benefits are available if I rent out an apartment after buying, for 1 year before I move into it?" Commented Mar 11 at 15:41
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    Fair point @Grade'Eh'Bacon. I rephrased the title and the text.
    – gdrt
    Commented Mar 11 at 17:03

1 Answer 1

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The idea is pretty common. Nevertheless, the golden rule is:

You can deduct those expenses only if you intend to earn money ("Gewinnerzielungsabsicht").

If you don't, the tax office can and will call it "Liebhaberei" ("hobby", and yes, that's the official term), and you cannot claim any deductions (not even for the year that someone actually rented it). And have to pay any tax savings back if you got them.

The Bundesfinanzministerium (Federal Ministry of Finance) has made some guidelines when to assume Liebhaberei, amongst them is

  1. Gegen die Einkunftserzielungsabsicht sprechende Beweisanzeichen

[...] Beispiel: "A" erwirbt mit Wirkung vom Januar 01 eine gebrauchte Eigentumswohnung, die er zunächst fremdvermietet. Ende Juli 03 kündigt er das Mietverhältnis mit Ablauf des 31. Dezember 03 wegen Eigenbedarf. [...] Dass "A" das Mietobjekt innerhalb von fünf Jahren seit der Anschaffung tatsächlich selbst nutzt, spricht gegen eine auf Dauer angelegte Vermietungstätigkeit. Kann "A" keine Umstände darlegen und nachweisen, die dafür sprechen, dass er den Entschluss zur Selbstnutzung erst nachträglich (neu) gefasst hat, [...]

  1. Signs of evidence against the intention to generate income

[...] Example: "A" acquires a second-hand condominium with effect from January 01, which he initially rents out to others. At the end of July 03, he terminates the tenancy at the end of December 31, 03 due to personal use. [...] The fact that "A" actually uses the rented property himself within five years of purchasing it speaks against a long-term rental activity. If "A" cannot present and prove any circumstances that indicate that he only (re)decided to use the property himself at a later date, [...]

This is basically what you are trying to do.

The example also mentions a loophole: You can make it work if you can claim that you changed your mind.

Making that claim properly is how some tax acountants earn their living, but they will probably advise you to wait longer than the 5 years mentioned in those guidelines.

So if you can wait maybe 10 years, you can probably save some taxes this way, this is not uncommon. But make sure to do the calculations, and ask an accountant before you execute your plans. You can easily ruin yourself if you think you saved 100k in taxes - and then have to pay it back after some years.

Note that renting to e.g. family members significantly below market rate just to save income taxes is also no intention to earn money.

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  • Great details. And thanks for the link. So, the rule of thumb is to rent the property for at least 5 years and only then start using it personally/sell it and get a tax accountant when that time comes. This answers my question. I will wait for couple days for other answers and if none will accept yours.
    – gdrt
    Commented Mar 11 at 18:13
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    @gdrt Get the tax accountant before you enact a plan, not after. You may get advice that changes how you proceed. There is no such thing as retroactive tax planning. Commented Mar 11 at 18:35
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    You are supposed to keep it 30 years and eventually make money in total - or at least give a reasonable impression that you tried to. If you e.g. make a 5 years rent contract and then sell it after it ends, the tax office will claim you had no intent to make money (only) by renting it out long term, but always wanted to sell it after 5 years. And take 5 years is a minimum, you should ask an accountant what they think. And you probably shouldn't do it only for the tax (last link) - saving 42% of 40k costs spread over 5-10 years is nice, but not game changing money considering 300k invest.
    – Solarflare
    Commented Mar 11 at 18:39
  • @Solarflare your answer in general shows that "buying, renting and then using yourself" is actually not that attractive. Indeed very little saving when spread over 5-10 years.
    – gdrt
    Commented Mar 11 at 19:34
  • @gdrt That wasn't what I wanted to say in general. I wanted to say specifically that the loophole you thought of how to buy a house for 50k less is something the taxman also already thought of. "Buy, rent, using yourself later" is still viable (e.g. you still get rent). It's maybe just not as viable or trivial as you thought. You cannot get free 40k from the taxman by also getting 10k rent for a year (and not even paying taxes on it, cause deductions). The taxman just wants his share too. But he also wants Germany to have (a lot) more flats, so he won't prevent you from offering one.
    – Solarflare
    Commented Mar 11 at 20:59

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