More take-home pay with a rental property? Lohnsteuerermäßigung explained in English

If your German rental property produces a tax loss, you can ask the tax office to reflect that loss in your monthly payroll tax rather than waiting for your annual assessment. The procedure is the Lohnsteuerermäßigung, a wage-tax reduction. The tax office registers an allowance (Freibetrag) in your electronic payroll tax data, and your employer withholds less tax each month. Your gross salary stays the same; your net pay rises.

What changes is the timing of the relief, not its size. An allowance brings forward the tax effect you would otherwise receive after filing your return. It is not a second benefit on top of that refund, and for a building it usually cannot start in the year you buy.

Your employer calculates wage tax (Lohnsteuer) from your electronic payroll tax data (ELStAM, short for elektronische Lohnsteuerabzugsmerkmale). A registered allowance reduces the salary on which that tax is calculated. Social security contributions are calculated without the allowance, so they do not change (lohn-info.de).

Your final tax is still set by the annual assessment, which credits the wage tax actually withheld, so the total relief is the same either way. What a rental loss is worth, and why a deduction is never a euro-for-euro refund, is covered in our guide to rental property tax benefits in Germany.

The allowance can include a negative total of certain types of income, rental income among them (§ 39a(1) sentence 1 no. 5(b) EStG). In practice you need:

• Unlimited tax liability in Germany as an employee, normally because you live here. The allowance available to employees with limited tax liability does not include rental losses (§ 39a(4) EStG).
• A loss after netting. A rental profit from another property, or self-employed income, is set against the loss first. Only a negative total counts.
• A property past its acquisition year, explained below.

The €600 minimum for these applications covers employment expenses, special expenses and extraordinary burdens. It does not apply to rental losses (§ 39a(2) sentence 4 EStG; ELSTER).

Married couples and civil partners who both have unlimited tax liability and do not live permanently apart have the loss determined jointly. The allowance is split equally between their two payroll records unless they request a different split (§ 39a(3) EStG).

The figure the tax office needs is your expected tax loss for the year: rent received, less deductible interest, owner-paid costs and building depreciation (AfA, Absetzung für Abnutzung). Principal repayment is not deductible; depreciation is, although no money leaves your account for it. Your tax loss and your monthly shortfall are different numbers.

Illustrative example: one apartment in 2027

Inputs: a fictional resale apartment acquired in March 2026 and let at €900 a month cold rent. Loan of €280,000 paid out on 1 April 2026, at an assumed 3.6% nominal interest rate with 1.5% initial repayment: €1,190 a month. These are assumptions, not a live offer. Depreciation at 2% on an assumed building share of €270,000.

The apartment needs about €416 a month from your own pocket before tax. The €6,000 expected tax loss is what an allowance would be based on.

Budget the purchase without the allowance. It narrows the monthly gap rather than closing it, and it arrives a year after purchase at the earliest. Alpha Minoris's Buyer's Agent service starts before the property search, with a discussion of your budget, borrowing capacity and the monthly contribution you can carry before any tax relief arrives. The allowance application itself stays with you or your tax adviser (Steuerberater).

§ 39a counts a rental loss only as it would be taken into account for income-tax advance payments under § 37(3) EStG. That provision considers a loss from letting a building only for calendar years that begin after the building was acquired or completed (§ 37(3) sentences 8 and 9 EStG).

• Resale apartment acquired in 2026: the earliest allowance year is 2027. The 2026 loss, often increased by one-off financing costs, reduces your tax only through the 2026 return.
• New build bought before completion: completion replaces acquisition. For a building completed in 2027, the earliest allowance year is 2028.
• Exception: the restriction does not apply where special depreciation under § 7b EStG is claimed (§ 37(3) sentence 10 EStG). § 7b has strict conditions, summarised in our tax benefits guide.

Inputs: the €6,000 expected loss above and an assumed flat marginal income-tax rate of 40%, giving an annual tax effect of €2,400. Income tax only. Monthly payroll effects are approximate, because withholding follows payroll tables rather than a flat rate.

The tax office spreads the allowance evenly over the months that follow the application. An application made in January can apply from 1 January (§ 39a(2) sentences 6 and 7 EStG).

Every route reaches €2,400; the allowance is never added to the refund. With an allowance from January, the €416 monthly shortfall falls to roughly €216. From May, it falls to roughly €116 for the remaining eight months. Actual timing depends on processing and your employer's payroll.

If the loss turns out smaller. Suppose you re-let at a higher rent and the actual 2027 loss is €4,000. Its tax effect is €1,600. With the January allowance you have already received €2,400 of relief, so the assessment asks for about €800 back.

Because the marginal rate falls as income falls, the exact 2026-tariff saving for a single filer with €64,000 of taxable income is about €2,340 (§ 32a EStG).

1. Form. Use the Antrag auf Lohnsteuer-Ermäßigung: the main form (Hauptvordruck) plus the Anlage Vereinfachter Antrag/Sonstiges, the schedule used to request losses from other types of income (ELSTER). You can file online through ELSTER, the tax administration's portal, or on paper with your own signature (§ 39a(2) sentence 1 EStG).
2. Deadline. The window opens on 1 November of the previous year and closes on 30 November of the year the allowance applies to (§ 39a(2) sentences 2 and 3 EStG). For 2027, that is 1 November 2026 to 30 November 2027. Applying early spreads the allowance over more months.
3. Evidence. Prepare a forecast of rent and deductible costs for the year. Support it with the lease, the lender's interest schedule, the purchase contract with the land and building split, and the owners' association's economic plan (Wirtschaftsplan). These are the same records listed in our Anlage V checklist.
4. One year or two. You can request the allowance for two calendar years (§ 39a(1) sentence 3 EStG; line 4 of the main form, per ELSTER). Interest falls each year, so the second year's loss is usually smaller.
5. Payroll. Your employer retrieves the allowance with your ELStAM. Check the next payslip.

If you bought before 2026, you can still apply for 2026 until 30 November 2026, spread over the few remaining months.

A tax return becomes mandatory. Once an allowance for a rental loss has been registered, you must file a return for that year if your salary exceeds a low threshold: €13,614 for a single person in 2026, being the basic tax-free allowance plus the employee and special-expenses lump sums (§ 46(2) no. 4 EStG; § 32a, § 9a and § 10c EStG). Filing deadlines are in our Anlage V checklist.

Report changes that reduce the loss. If circumstances change to your disadvantage, you must tell the tax office promptly (§ 39a(1) sentence 5 EStG). Examples include a sale, a higher rent, lower interest after refinancing, or a move abroad that ends your unlimited tax liability. Where too little wage tax was withheld because the allowance was wrong, the tax office reclaims any shortfall above €10 (§ 39a(5) EStG). If the loss grows, you can apply for a higher allowance (§ 39a(1) sentence 4 EStG).

An allowance suits an employee with a stable salary, a property past its acquisition year and a documented loss forecast. Waiting for the assessment may be better if your forecast is uncertain or a back-payment would strain your budget. If the purchase only works with the allowance in place, the budget is probably too tight.

Does a Lohnsteuerermäßigung increase my tax refund?

No. It moves the relief into your monthly pay. Your refund is correspondingly smaller, and it can turn into a back-payment if the actual loss is smaller than forecast.

Can I apply in the year I buy a rental apartment?

Generally not for the rental loss on that building. The loss of the acquisition year is claimed through that year's return. The exception is a building for which § 7b special depreciation is claimed.

Do I need a Steuerberater to apply?

Not legally. A tax adviser can prepare the loss forecast and check the depreciation base, which Anlage V also needs.

Does this work if I live outside Germany?

Not usually. The rental-loss allowance is available to employees with unlimited tax liability. If you move abroad during the year, report it to the tax office. See what happens to your German rental property if you move abroad.