Taxation | Business Administration

Cold rent | EUR 4,000 | EUR 4,000

– Interest | EUR 4,000 | EUR 4,000

– Eradication | No effect! | EUR 1,000

– Depreciation | EUR 2,000 | No impact

Surplus | EUR 2,000 (loss) | EUR 1,000 (loss)

Tax Invoice without Duration of Use Report | Tax Invoice with Duration of Use Report | Business Account (Cashflow)

Cold rent | EUR 84,000 | EUR 84,000 | EUR 84,000

– Interest | EUR 30,000 | EUR 30,000 | EUR 30,000

– Repayment | No Effect! | No Effect! | EUR 24,000

– AfA | EUR 20,000 (2% p.a.) | EUR 70,000 (7% p.a.) | No impact!

Surplus | EUR 34,000 (surplus – taxable) | EUR 16,000 (tax loss – tax refund) | EUR 30,000 (surplus)

Real estate, also known metaphorically as “concrete gold”, has always been one of the most popular ways to build large assets by individuals and entrepreneurs. The reason for this is above all the numerous design possibilities as well as legal advantages. Because especially private individuals can save taxes with real estate, but at the same time build up a fortune. This is achieved, for example, by cleverly creating tax losses.

Buying Property to Save on Taxes: How Can This Work?

The German Income Tax Act (EStG) contains various regulations that mainly relate to real estate assets in private assets. The legislator wants to promote private investment in housing, increase the ownership rate and at the same time remedy the lack of housing. This only succeeds if private individuals receive (also) tax incentives for their investments.

The coordinated regulations of the EStG make it possible to save taxes on real estate but actually make profits. How this works, we describe in the next paragraphs.

1.1. Step 1: Basics of Real Estate Taxation

With leased properties in private assets, the landlord earns income from renting and leasing (§ 21 EStG). Revenue is the surplus of revenue over advertising costs (‘revenue minus expenditure equals profit or loss’). Revenue shall include in particular: