I knew my way around real estate and taxes in Canada, but when I came to Germany I had to relearn everything. Here's what you should know:
Purchase Costs (Nebenkosten)
You as the buyer will have to pay additional costs when buying:
- Grundbuchkosten (Land Registry) + Grundschuld Eintragung (Mortgage Registration) + Notar (Notary): Roughly 2%
- Grunderwerbesteuer (Transfer Tax): 3.5-6.5% province dependent
- Makler Provision (Agent Commission): Roughly 3.5%
Total: 9-12%.
Purchaser & Purpose:
There are roughly three use cases to consider.
- Option 1: Buying personally for personal use
- Option 2: Buying personally for use as rental property
- Option 3: Buying as a business for use as rental property
Capital Gains on Sale:
- Personal use: Can sell anytime without paying capital gains tax
- Personal rental: Can sell after 10 years without paying capital gains tax
- Business rental: Capital gains tax will always apply
Personal Use Notes:
- If you've not owned it for 10 years, and rented it out before moving in, You’ll need to live there for 3 years before the capital gains exemption applies.
- Holiday homes (as long as they're not rented) and property occupied by your children (as long as they're dependents) also fall under the capital gains exemption.
Ongoing Costs & Tax Deductions:
- Personal use: Almost no deductions possible. Except basic repairs and cleaning. (These income tax deductions also apply if you're a renter)
- Personal rental: From rental income, you can deduct all repairs and maintenance, property taxes, and depreciate of 2% of the building value per year. (You can’t depreciate land value).
- Business rental: as above
Large Renovations:
Within the first 3 years of buying, you can deduct the full cost of renovations only if they're less than 15% of the building value, otherwise you will have to depreciate them at 2% too.
Tax Rates to Consider:
- Personal Rentals: Rental income is taxed at your personal income tax rate. In Germany that's as high as 45%.
- Business Rentals: Corporations are taxed at 30% (15% Gewerbesteuer + 15% Körperschafsteuer).
- Immobilien GmbH: If the company only generates income from rental of its own properties it's a trade tax (Gewerbesteuer) exemption, reducing it's tax obligation to only 15% corporate tax (Körperschafsteuer).
So a personal purchase may be preferable if you expect profits to come mostly from capital gains. An Immobilien GmbH may be preferable if you expect profits to come from rental income. Also keep in mind that corporations are more costly to maintain.
Note: I am not a tax or financial adviser, please speak to a professional before making investment decisions.