Annual tax assessment

Annual Tax Assessment (officially: Income Tax Assessment) is the annual notice issued by the tax office that determines a taxpayer’s actual income tax liability for the past calendar year. For property owners, it includes the tax implications of all property-related income and expenses: rental income, depreciation (AfA), income-related expenses, capital gains from sales, and special expenses such as mortgage interest. It serves as the basis for additional payments, refunds, and adjustments to estimated tax payments.

Real Estate-Related Items in the Annual Tax Assessment

The income tax assessment summarizes all income. Areas relevant to property owners:

• Income from renting and leasing (Section 21 EStG): Balance of rental income (annual base rent) and all deductible income-related expenses. Income-related expenses include: depreciation (straight-line depreciation at 2% per annum or 2.5% for buildings constructed before 1925), interest on debt, administrative costs, maintenance expenses, property tax, insurance premiums, and brokerage fees when changing tenants.
• Private capital gains (§ 23 EStG): Gains from the sale of a property within the speculation period (10 years from acquisition) are taxable. Losses from private sales transactions can only be offset against gains under § 23 EStG in the same year or in prior/subsequent years (limited loss carryover).
• Tax deduction for contractor services (Section 35a EStG): 20% of labor costs for contractor services in owner-occupied properties (max. €1,200 per year) are deducted directly from the tax liability.
• Energy-efficiency renovation measures (Section 35c EStG): For owner-occupied properties, 20% of eligible renovation costs can be claimed as a tax deduction over three years (max. €40,000 for the entire project).

Filing an Appeal Against the Annual Tax Assessment

Property owners should carefully review the annual tax assessment. Common sources of error:

• Unaccounted-for income-related expenses (missing receipts, lack of supporting documentation)
• Incorrectly calculated depreciation (incorrect purchase price, incorrect building portion)
• Failure to consider a loss carryforward from previous years
• Errors in acquisition-related production costs (Section 6(1)(1a) EStG)
• Incorrect allocation between the building and land portions of the purchase price

An appeal against the annual tax assessment may be filed with the competent tax office within one month of notification (appeal period pursuant to § 355 AO). After this period expires, the assessment becomes final. Anyone who misses the deadline may only obtain a correction in special exceptional cases (e.g., obvious inaccuracy pursuant to § 129 AO).

Advance Tax Payments and Their Adjustment

The tax office sets quarterly advance payments based on the most recent annual tax assessment (due on March 10, June 10, September 10, and December 10). If there is a change in income circumstances-e.g., due to the purchase or sale of real estate, increased income-related expenses resulting from renovations, or the loss of rental income-the taxpayer may apply to the tax office to adjust the advance payments in order to avoid the risk of having to pay additional taxes or making unnecessary advance payments.

Depreciation Base and Annual Tax Assessment

A frequently overlooked point: The amount of annual depreciation depends on the correct allocation of the purchase price between the land and building components. The land portion is not depreciable; only the building portion is. The tax office reviews this allocation and may reject an allocation made in the purchase agreement if it does not reflect the actual value ratios. Purchase price allocation software or an expert appraisal can help document a reliable and tax-optimized allocation.

Practical Tip for Property Owners in Nuremberg and Franconia

As a landlord in the Nuremberg metropolitan region, we recommend having your annual tax assessment reviewed by a tax advisor every year-especially in years involving major transactions (purchase, sale, extensive repairs). Income-related expenses are often forgotten or incorrectly classified. Particularly relevant: the difference between immediately deductible maintenance expenses and acquisition-related production costs subject to capitalization (Section 6(1)(1a) of the German Income Tax Act (EStG)) in the first three years following purchase.

Our Nuremberg network includes experienced tax advisors specializing in real estate-we’d be happy to put you in touch.

Frequently Asked Questions

By when do I have to file my tax return with rental income?

Generally, July 31 of the following year is the filing deadline for tax returns prepared by the taxpayer (for the 2025 tax year, this is July 31, 2026). Those who hire a tax advisor receive an extended deadline until the last day of February of the year after next (for 2025: February 28, 2027). In cases of prolonged vacancy or complex circumstances, additional deadline extensions may be requested.

How long should I keep annual tax assessment notices?

Individuals with income from renting and leasing should keep tax assessment notices for at least 10 years, as the tax office may amend assessments during this period (statute of limitations for assessment, extended to 10 years in cases of tax evasion). Purchase agreements, financing documents, and depreciation records should be kept for the entire period of ownership of the property plus 10 years.

What are the tax implications if I sell my rental apartment in Nuremberg after 8 years?

Since the capital gains tax period is 10 years, a sale after 8 years is subject to tax. The profit (sales proceeds minus amortized acquisition costs and incidental selling expenses) is taxed at your personal income tax rate. Depreciation amounts already claimed increase the taxable profit (depreciation recapture). After 10 years, the sale is tax-free.

Can I offset rental losses against my wages?

Yes. Losses from renting and leasing (§ 21 EStG) can be offset in the same year against positive income from other sources (e.g., salary, business operations). This reduces income tax-a significant advantage for investors in the initial phase with high interest expenses and/or renovation costs.

What special considerations apply to the annual tax assessment following a real estate purchase?

The first year after a real estate purchase often brings unexpected complexity from a tax perspective. In addition to the current rental surplus or loss, the following points require special attention: the correct determination of the depreciation base (allocation of the purchase price between the building and the land), the tax classification of the first repair expenses as acquisition-related production costs or immediately deductible maintenance expenses, and the initial adjustment of estimated tax payments by the tax office based on the new income situation. In the Nuremberg metropolitan region, where purchase prices for rental apartments often significantly exceed the building’s market value, the allocation of the purchase price is a frequent point of contention: a high proportion of land value significantly reduces the depreciable tax base. The Nuremberg-South Tax Office and the Nuremberg-North Tax Office apply the Federal Ministry of Finance’s guidelines for purchase price allocation, which tend to result in a high land component for inner-city locations. In such cases, we recommend commissioning an expert purchase price allocation that substantiates the actual land value and can be claimed for tax purposes.

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