Income Tax Reduction for Real Estate Owners
More Net Income Through Real Estate Costs?
Many private investors know the challenge: their real estate investments aren't yet generating a positive monthly cash flow. That’s not unusual—after all, properties in desirable locations are typically long-term investments. While rental income gradually increases and loan repayments reduce debt over time, the question often remains: How can I increase my monthly net income today?
One option many overlook: the income tax reduction application ("Lohnsteuerermäßigungsantrag"). This allows landlords and real estate investors to reduce their monthly income tax burden throughout the year—especially helpful when there are significant deductible expenses involved. How does it work, what should you watch out for, and is the effort worth it? This article explains it all.
What Is an Income Tax Reduction Application?
The income tax reduction application allows employees to claim tax-relevant expenses during the year, rather than waiting for their annual tax return and subsequent refund. As a result, less income tax is withheld from monthly paychecks. This can be particularly attractive for real estate owners who incur ongoing costs such as loan interest, maintenance, and depreciation.
Who Should Consider Filing?
In short: Employees who own rental properties and can deduct substantial expenses (so-called “advertising costs” or Werbungskosten) from their taxable income.
It’s not suitable for:
Owner-occupiers who live in the property themselves (as most of their costs are not tax-deductible)
Self-employed individuals, who manage taxes via advance payments and deduct expenses directly in their annual returns
Which Costs Can Be Included?
The following expenses can typically be included in your income tax reduction application:
Interest payments on loans (proof: interest statements, loan agreements)
Maintenance and renovation costs (invoices, receipts)
Depreciation (AfA) on the property (purchase contracts, depreciation schedules)
Non-transferable service charges, i.e., those not passed on to tenants
Property management fees, if tax-deductible
How Does the Application Process Work?
Prepare your application: Compile an overview of all deductible costs.
Gather documentation: Interest statements, contracts, invoices, lease agreements.
Submit your application:
Online via ELSTER (faster and easier)
Or in paper form to your local tax office
💡 Tip: The better your documentation, the faster your application will be processed.
When Is It Worth Applying?
There is no official minimum, but in practice, the application generally becomes worthwhile if you have more than €1,000–€1,500 in annual deductible expenses. The higher your expenses, the greater your monthly tax relief.
Example Calculation
(Consult your tax advisor for individual figures.)
Loan interest: €2,000
Maintenance costs: €1,000
Total deductible expenses: €3,000
For someone earning €50,000 gross per year, this might reduce monthly income tax by around €50 — that’s €600 more net income annually.
What Are the Benefits?
Immediate monthly tax relief instead of waiting for your annual tax return
Improved liquidity throughout the year
Timely recognition of deductible expenses
What Should You Watch Out For?
Be realistic: Overstating expenses without proof can result in back payments later.
Keep it updated: If your cost situation changes (e.g. unexpected expenses or a loan payoff), adjust your application accordingly.
Provide clean documentation: Missing or unclear evidence may delay or block approval.
Can I Modify My Application Later?
Yes, the application can be adjusted at any time during the year—useful if your actual expenses differ from your initial estimate.
How Long Does Processing Take?
Typically 4 to 8 weeks, depending on your local tax office. If it takes longer, a polite follow-up can help move things along.
This approach allows landlords and real estate investors to unlock tax savings sooner and improve cash flow throughout the year—without waiting for their annual tax refund.
