Tax Benefits When Investing in Real Estate in Germany: Depreciation
Depreciation can help you save thousands of Euros when investing in real estate. 🥳 We discuss depreciation (“Abschreibung”) – what it is, and how it can save you thousands of Euros annually.
Key Takeaways
- The benefits of depreciation apply exclusively to real estate investors and not to homeowners.
- Depreciation exists because the value of your property naturally decreases over time due to wear and tear caused by tenants.
- For existing properties, you can deduct 2% over a period of 50 years. For new properties, you can deduct 3% for 33 years (2024).
- If the properties are held by SPVs on GermanReal.Estate, investors will benefit from tax advantages from depreciation as well.
Introduction
Are you interested in real estate investments and the possible tax advantages they offer? Then you’ve come to the right place because this Germanreal.Estate Wiki explains the concept of depreciation. Discover how depreciation can save you thousands of euros annually when you invest in real estate. In the field of German real estate, depreciation is one of the most important tax benefits for investors (homeowners do not get tax advantages from depreciation).
In this article, you will learn who benefits from depreciation, how it is calculated, and what advantages it offers for both existing and new properties. We will also discuss the tax advantages associated with investing in GermanReal.Estate.
Who Profits From Tax Benefits With Depreciation?
First and foremost, it is important to know that the tax advantages through depreciation apply exclusively to real estate investors and not to homeowners. Consequently, investing in real estate proves to be an attractive investment option due to the numerous tax advantages in Germany as well as passive income.
Unlike homeowners, who do not benefit from depreciation, real estate investors can use this tax trick to their advantage. As real estate investors ourselves, we prefer renting and owning rental properties because it makes financial sense, especially considering the numerous tax benefits, of which depreciation is the most important.
Calculating Your Tax Benefits With Depreciation
As a real estate investor, your tax liability is based on the net rent you receive. Let’s take an example: You own a property worth 100.000€ and receive an annual net rent of 3.000€. Theoretically, this 3.000€ net rent would be subject to income tax, which could be as high as 42%, which would mean 1.260€ in tax (net profit: 1.740€). However, as an investor, you have the advantage of being able to deduct various expenses from your rental income, such as mortgage interest, property management fees, repairs, renovations, and depreciation.
Depreciation, a unique concept in German tax law, takes into account the fact that the value of your property naturally decreases over time due to wear and tear caused by tenants. This grants real estate investors significant tax advantages. Unlike homeowners, who are solely responsible for the maintenance of their properties, investors can benefit from this theoretical decrease in value. It is worth noting that property prices generally rise in the long term, which reinforces the profitability of depreciation.
By using depreciation, real estate investors can effectively reduce their taxable income and save taxes. In this way, they can maximize their investment returns and create a more favorable financial position. The combination of rental income and tax benefits, especially through depreciation, makes real estate investment an attractive path for wealth accumulation and long-term financial success.
Depreciation brings real estate investing to the next level. Investors can not just profit from depreciation through direct real estate investments but also by investing in our real estate security tokens.
Tax Benefits (Depreciation) With Existing Properties
Let’s go back to our example with the 100.000€ property that brings in 3.000€ net rent. With a depreciation rate of 2% over a period of 50 years, we can deduct 2.000€ from our net rent every year. Consequently, our taxable profit would be reduced to 1.000€, which means a tax saving of 840€ (with a 42% tax rate). It is even more advantageous if the real value of the property increases by 2%. In this case, we can take advantage of the discrepancy between the depreciation and the increase in value. If we subtract the 2.000€ attributable to depreciation and add the 2.000€ from the increase in value, we have an extra 4.000€ in our pockets (net profit: 2.580€).
By using depreciation strategically, real estate investors can not only minimize their tax obligations but also benefit from potential increases in the value of the property. This combination offers a double-edged advantage that increases the overall profitability of the investment.
Tax Benefits (Depreciation) With New Properties
The tax benefits associated with depreciation become even more enticing for real estate investors when it comes to properties built in 2024 and later. As part of a significant tax reform, depreciation rates for these new properties have been increased by 50%. This change offers investors an exceptional opportunity to take advantage of improved tax benefits. We proactively acquired a property in Düsseldorf on the GermanReal.Estate Marketplace to take full advantage of these increased tax benefits. By investing in projects currently being developed through our platform, our investors can benefit even more from this tax reform.
Investing in new properties under the changed tax framework not only offers potential appreciation and rental income but also significantly improves the overall financial result due to the increased tax benefits related to depreciation. With the GermanReal.Estate Marketplace, you can discover and invest in new properties that meet your investment goals while benefiting from the increased tax advantages that depreciation offers.
Tax Benefits When Investing On GermanReal.Estate
An investment in GermanReal.Estate also offers the opportunity to benefit from additional tax advantages as an investor. One of the main advantages is that you do not have to worry about the tax returns of the individual properties and you still benefit including depreciation. This ensures a seamless and hassle-free process so you can focus on maximizing your return.
Furthermore, if the properties are held by an SPV, investors can benefit from higher returns due to the tax advantages associated with depreciation in combination with the tax advantages of the SPV. By entrusting your investment to us and utilizing our expertise, you can benefit from the optimized tax structure and increased profitability that comes with investing in SPV-owned real estate.
Conclusion
In summary, depreciation is an effective tool for real estate investors to maximize their tax benefits. Unlike homeowners, investors can use depreciation to offset taxable gains, resulting in significant savings. The concept of depreciation recognizes that property naturally depreciates over time, so investors can claim this depreciation for tax purposes.
Whether you own existing property or are looking to invest in new, it is important to understand the tax benefits associated with depreciation. By taking advantage of the tax reform that increases depreciation rates for new properties, investors can further maximize their tax savings.
Investing in real estate through our platform offers a convenient way to benefit from these tax advantages while giving you the chance to invest starting from just 100€. We take care of all the necessary tax returns, including depreciation, and allow investors to seamlessly optimize their returns.
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