Smart planning can lead to tax benefits—when purchasing, during ownership, and when selling condominiums. This article outlines current regulations, available tax benefits, and relevant changes resulting from the 2025 coalition agreement.
For many people, the desire to own their own home remains as strong as ever—whether driven by a need for security, independence, or the desire to build wealth. Condos are particularly in demand: they’re compact, affordable (compared to a house), and ideal as an investment or retirement plan. In addition to emotional and financial reasons, however, there’s another factor that should play a role in the decision to buy: tax benefits.
The government supports the purchase and ownership of real estate through a variety of tax breaks. Those who are well-informed can save on taxes when buying, while living in the property, and even when selling it later—sometimes to a considerable extent. In this article, we take a current look at the applicable regulations and show how the new federal government will be setting a new course starting in 2025.
Condominium for Personal Use—Here Are the Benefits You Should Know
If you move into a condominium yourself, you cannot claim traditional depreciation deductions; these are reserved for landlords. Nevertheless, there are also tax breaks and government support available for owner-occupiers.
Numerous federal states and municipalities promote home ownership with low-interest loans or grants, especially for families with children or middle-income households. These incentives vary by region, so it’s worth checking with the respective state banks or housing subsidy agencies.
For example, Hesse offers a grant for first-time buyers of owner-occupied homes through its new “Hessengeld” program. The grant amounts to up to 10,000 euros for individuals, 20,000 euros for couples, and an additional 5,000 euros per child under the age of 18. Other federal states are planning similar programs.
Another advantage lies in the so-called “saver’s allowance”: Anyone saving capital to buy a home can receive income such as interest or dividends tax-free up to an annual allowance of 1,000 euros per person (2,000 euros for married couples)—an additional incentive to build up equity.
The so-called “Baukindergeld” (child home-buying allowance) was also a popular subsidy program until recently. Families who purchased an owner-occupied property by 2021 will continue to receive a subsidy of 1,200 euros per child per year for several more years. Although no new subsidy measures of this kind have been approved yet, the coalition agreement calls for new home-ownership programs by 2025—more on that shortly.
Investment with Tax Benefits—The Rental Apartment
The tax benefits are significantly more substantial for those who do not live in their condominium themselves but instead rent it out. This option is particularly attractive from a tax perspective.
The key element is the so-called depreciation allowance (AfA). Under this provision, you can claim a tax deduction of two percent of the building’s acquisition cost—not the land’s—each year, over a period of 50 years. For older buildings constructed before 1925, the depreciation allowance is as high as 2.5%. Those who build new homes or invest in new construction may also benefit from special depreciation allowances (e.g., under Section 7b of the Income Tax Act (EStG)).
In addition, all ongoing costs associated with renting out the property can be claimed as income-related expenses. These include, among other things, interest payments on the mortgage, real estate agent commissions, notary and land registry fees, travel expenses to the property, maintenance costs, and tax advisory fees related to the rental.
Another tax advantage: In the initial phase, expenses often exceed rental income. These losses can be offset against other income—such as salary or self-employment income—resulting in immediate tax relief.
Making the Most of Purchase-Related Expenses
There is also tax flexibility regarding the often-underestimated incidental purchase costs, though only when the property is rented out. Notary fees for the purchase contract, land registry fees, real estate agent commissions, and expenses for mortgage brokerage can be deducted as business expenses in the context of renting out the property. If the property is owner-occupied, these expenses do not qualify for tax benefits and are fully attributed to personal use.
Selling Tax-Free—It Pays Off in the Long Run
A particularly attractive tax-saving opportunity arises upon sale: If you hold your rented condominium for at least ten years, you can pocket the profit from the sale tax-free. This so-called “speculation period” (Section 23 of the Income Tax Act) applies only to properties used for personal residence.
For owner-occupied residential property, the rule is even more generous. In this case, you are exempt from tax on any capital gain if you have used the apartment exclusively for your own personal use in the year of sale and in the two preceding years. This can be an enormous advantage, especially when real estate prices have risen sharply.
What Changes Will the 2025 Coalition Agreement Bring?
The new federal government, comprising the CDU/CSU and SPD, adopted a coalition agreement in the spring of 2025 that sets an interesting course for real estate buyers as well.
Support for Homeownership for Families: Among other things, the plan includes the introduction of new programs offering principal repayment subsidies, government-backed interest rate reductions, and guarantees for construction loans to lower the equity barrier. These measures are currently being finalized but are scheduled to take effect in 2025.
Energy-Efficient Renovation of Inherited Apartments: The coalition is also exploring tax incentives for the energy-efficient renovation of inherited properties. The goal is to prevent demolition or forced sales and to promote the climate-friendly renovation of older buildings.
Property Tax Reform Starting in 2025: Starting this year, the reformed property tax will be levied for the first time. It also applies to condominiums, as they pay a pro-rata share of the property tax. The amount varies depending on the neighborhood and the assessment rates set by the municipality. Buyers and owners should definitely take this into account when calculating their ongoing costs.
Even though tax policy is currently focused more on businesses—for example, through planned declining-balance depreciation for business investments and a gradual reduction in the corporate income tax starting in 2028—the coalition agreement shows that the issue of private real estate ownership remains on the political agenda.
Conclusion: Good Planning Yields Tax Benefits
Whether for personal use or as an investment: Buying a condominium can be worthwhile in many ways. Those who rent out their property benefit from depreciation, income-related expenses, and long-term tax exemption upon sale. But owner-occupiers, too, can save money through regional incentives, new government grants, and tax-free capital gains.
The 2025 coalition agreement indicates that the government intends to continue promoting home ownership, particularly for families. Property tax reform and planned renovation incentives should also be taken into account in financial planning. To realize the full potential, it is advisable to seek early consultation with tax experts and keep a close eye on new legislative initiatives.