Buying a property is not only an investment in home ownership or wealth accumulation, but also offers clear tax advantages. Buyers and landlords can make targeted use of this. Those who plan early and correctly claim relevant items from the tax office can make significant annual tax savings. In conjunction with suitable financing, the property becomes a capital investment with tax leverage.
The following applies: not every property is treated equally for tax purposes. While owner-occupiers benefit from certain subsidies, investors have significantly more extensive options for deducting costs and depreciation.
As an experienced real estate agent in Dresden, VIAREALIS® not only advises you on the selection of suitable properties, but also on the optimal strategy – whether new construction, existing properties or for letting.
What costs are tax-deductible when buying real estate?
When purchasing a property to rent out, numerous items can be claimed for tax purposes. These so-called advertising costs reduce the taxable rental income and thus directly reduce the annual tax burden. The more precisely the costs are itemized and documented, the greater the potential tax savings.
Typical deductible expenses when buying a property:
- Notary fees and land register entry (for rented properties)
- Estate agent fees if the property is used for letting
- Financing costs, e.g. interest on real estate loans
- Fees for expert opinions or purchase advice
- Travel expenses in connection with the inspection or administration
- Incidental purchase costs, insofar as they serve the purchase for rental purposes
These costs are not directly deductible if the property is owner-occupied – here the tax office makes a strict distinction between owner-occupation and investment.
VIAREALIS® not only offers a tailor-made real estate offer, but also advises you on the right property strategy – so that you can take advantage of tax benefits when buying real estate.
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Use depreciation – cleverly deduct real estate as a capital investment
A particularly effective lever for tax savings when buying a property is the so-called depreciation allowance (Absetzung für Abnutzung, AfA). Anyone who buys a rented property can deduct the value of the building from tax on a pro rata basis over many years – regardless of whether a loss in value actually occurs.
This is how depreciation works:
- For existing properties (built from 1925): 3% annual depreciation over 50 years
- For older buildings (built before 1925): 2.5 % annually over 40 years
- For new buildings (since 2023): increased depreciation of 5% per year possible
- The depreciation only relates to the value of the building, not the land
- Modernizations after purchase can also be depreciated under certain conditions
Example: With a building value of €250,000, an annual tax deduction of €7,500 can be made with 3% depreciation – a considerable advantage over the entire holding period.
Professional planning is particularly worthwhile when purchasing a new building as an investment or an existing property in Dresden. VIAREALIS®, your estate agent in Dresden, will show you suitable properties and assist you in evaluating the tax perspective.
Also possible for owner-occupiers: use indirect tax benefits
Although the direct tax benefits when buying a property are mainly reserved for investors, owner-occupiers can also benefit from tax advantages in certain cases – for example through subsidy programs, special depreciation allowances or when selling the property at a later date.
Owners of owner-occupied residential property should be aware of these points:
- Subsidy programs for energy-efficient refurbishment (e.g. tax incentives in accordance with § 35c EStG)
- KfW subsidies for new buildings with high energy efficiency
- Capital gains tax-free after ten years of holding for own use
- Home office portion tax-deductible if a separate room is used
- Modernizations can be subsidized or financed at low interest rates
Even if the tax advantage is lower for owner-occupation, a strategic approach is worthwhile – for example by investing in eligible measures or long-term planning of the sales strategy.
VIAREALIS® supports owner-occupiers in Dresden in the selection of suitable new or existing properties – with a view to living comfort and tax effects.
Energy-efficient renovation – and save taxes
Anyone who buys an existing property and then renovates it to make it more energy-efficient can benefit from attractive tax concessions. Legislation specifically promotes measures that reduce energy consumption and improve the standard of buildings – a clear incentive to turn older properties into profitable investments.
These refurbishment costs are tax deductible:
- Insulation of roof, facade or basement ceilings
- Replacement of windows or front doors
- Renewal of the heating system
- Installation of ventilation or solar systems
The following applies to owner-occupied properties: up to 20% of the refurbishment costs (max. €40,000) can be deducted directly from tax over three years – in accordance with Section 35c EStG. Those who rent out, on the other hand, can claim refurbishment costs – depending on the extent – as income-related expenses or production costs close to acquisition.
VIAREALIS® shows you suitable existing properties in Dresden with modernization potential and supports you in making targeted use of tax advantages.
What tax pitfalls jeopardize tax benefits when buying real estate?
When buying a property and its subsequent tax treatment, there are a few points that often lead to problems. If you are aware of them, you can avoid unnecessary additional payments or the loss of tax benefits.
When does letting become a commercial activity – and how does this affect my real estate taxes?
When buying a property to rent out, the activity is generally considered private asset management. The income from rental income is then included in the tax return as normal income, and many income-related expenses are tax-deductible. It becomes problematic when the tax authorities assume a commercial activity – for example in the case of frequent buying and selling, high volumes or additional services. Different rules then apply when it comes to real estate taxes, which significantly shifts the ratio of expenses to returns. A commercial classification leads to more fees, stricter checks and possibly higher taxes.
How does the tax deduction affect the tax advantages of a property as an investment?
Anyone who holds several properties as part of a partnership must take into account the so-called passing-on effect. Under certain circumstances, even a small commercial acquisition or commercial activity is sufficient for all income – even from privately rented apartments, a house or a building – to be considered commercial. This applies to financing costs, financing interest, ancillary purchase costs with notary costs or land register entry, as well as the possibility of tax deductions, which was previously possible in full. As a result, laboriously planned tax savings can be lost.
At what point does the tax office classify a property as a hobby – and what tax benefits are then lost?
When purchasing a property, the tax office checks over several years whether the property is being operated profitably as a capital investment. If permanent losses are incurred, for example due to an incorrect assessment of the purchase price, rents that are too low or high refurbishment or renovation costs, the tax authorities may assume that the property is a hobby. In this case, even traditional income-related expenses, depreciation or amortization (depreciation for wear and tear) or expenses for energy-related renovations are no longer tax deductible. The loss of tax benefits often means several thousand euros a year in lost income for owners.
What evidence does the tax office require so that costs and income-related expenses can be claimed for tax purposes?
Many tax tips are only effective if all costs are fully documented. This includes invoices for a plot of land, the purchase of a property as an investment, an apartment, a home or a house purchase, as well as receipts for ancillary purchase costs, fees, funds for modernization or energy measures. In case of doubt, the tax office requires precise proof of the form of expenditure, changes during the construction phase, the price of individual services or whether certain items were claimed correctly. Missing documents can lead to expenses not being recognized and the planned benefits in terms of real estate taxes being lost.
Particularly in the case of modernizations after purchase – such as energy-efficient renovations – the correct classification determines whether something is considered tax-deductible or not. This classification has a significant impact on investment, returns and long-term tax opportunities.
What are the tax advantages of selling a property?
Selling a property can offer considerable tax advantages if certain deadlines and rules are adhered to. Owners, landlords and property owners should know exactly when the tax authorities demand taxes – and when tax advantages when buying a property and later sales strategies complement each other.
Tax benefits when selling real estate – an overview of the key rules
- Speculation period (capital investment):
Profits from the sale of a property as a capital investment are taxable income if the sale takes place within 10 years of purchase. After this period has expired, the profit remains tax-free – a major advantage for investors. - Tax-free sale for own use:
If a home, owner-occupied apartment or other residential property is used by the owner in the year of sale and the two previous years, the profit remains tax-free. This applies regardless of the purchase price or the increase in value. - Sale after refurbishment or energy-related renovations:
High refurbishment or renovation costs within the first three years after purchase can be considered as acquisition-related production costs. They then increase the value of the building and influence depreciation, amortization and the subsequent determination of profits. - Inheritance & gift:
In the case of inheritance or gift, the new owner takes over the speculation period of the predecessor. This means that gains can be tax-free, even if the property was only held for a short time. The correct valuation of the land, building, costs and price remains important.
Tax advantages of buying real estate – the most important facts at a glance
If you buy a property as an investment, you can save considerable taxes every year with a well-planned strategy. Here are the most important tax advantages at a glance:
- Depreciation (AfA): Up to 5% of the building value is tax-deductible each year
- Income-related expenses: claim brokerage fees, interest, notary fees and travel expenses
- Energy-efficient refurbishment: up to 20% of costs deductible (§ 35c EStG)
- KfW fundingInterest subsidies & repayment grants for energy-efficient construction
- Home office regulation: Proportionate costs deductible for personal use (subject to conditions)
- Tax-free sale: gains tax-free after 10 years of holding (capital investment), immediately tax-free for own use
- Incidental purchase costs: Partially deductible when renting (e.g. estate agent, expert opinion)
With the right planning, buying real estate becomes an efficient investment with tax leverage. VIAREALIS®, your real estate agent in Dresden, accompanies you from the choice of property to tax-efficient financing.
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Plan your real estate purchase with foresight – and get the most out of it for yourself.
Frequently asked questions about saving taxes when buying real estate
What costs can I deduct for tax purposes when buying real estate?
Numerous costs can be claimed for tax purposes when renting, including notary fees, estate agent fees, interest and travel costs. It is important that all expenses are properly documented, as the tax office requires clear evidence. Our article on condominiums in Dresden also provides a good overview of typical cost structures.
How does depreciation work for real estate?
Investors can deduct part of the building value from tax each year via depreciation. For new builds, 5% per year is possible, which significantly reduces the tax burden over many years. If you also want to optimize your financing in the long term, you can secure yourself with a forward loan .
Are there tax benefits for owner-occupation?
Yes, owner-occupiers can also save taxes, for example through energy-efficient renovations in accordance with § 35c EStG or through state subsidy programs. In addition, profits remain tax-free when selling after ten years of owner-occupation. You can find out how to sell a condominium in the best possible way here.
Can I also save taxes on old buildings?
Tax benefits are particularly often possible for old buildings, especially through major modernizations or special depreciation allowances for listed buildings. It is crucial that measures are clearly defined and documented so that they can be claimed for tax purposes. Additional yield opportunities can arise, especially for special target groups – such as student apartments in existing properties.
What is your next step towards ownership?
Whether you are looking for your first home or want to expand your capital investment – VIAREALIS® offers you inspected properties, personal advice and sustainable strategies for your project.