Owner-occupied property

Owner-Occupied Property - Owner-occupied property refers to a property that is occupied by the owner for their own residential purposes. Under German tax and inheritance law, this form of home ownership is subject to a number of special provisions that fundamentally distinguish it from rental properties.

Tax Considerations for Owner-Occupied Properties

Those who live in their own property cannot claim the standard depreciation for wear and tear (AfA) under Section 7 of the German Income Tax Act (EStG)-this is only available to owners of rental properties. In return, the legislature has established other tax incentives. Since 2020, owner-occupiers have been able to claim tax deductions for expenses related to energy-efficient renovation measures under Section 35c of the German Income Tax Act (EStG). Eligible expenses include, among others, thermal insulation of walls and roof surfaces, the replacement of windows and exterior doors, the renewal of the heating system, and the installation of digital systems for optimizing energy consumption. In total, up to 40,000 euros in tax relief per property can be claimed over a three-year period-distributed as 7 percent of the costs (maximum 14,000 euros) in the first and second years and 6 percent (maximum 12,000 euros) in the third year.

An additional special provision applies to listed buildings: Under § 10f EStG, owner-occupiers may deduct construction costs for building measures necessary for the preservation of the building as a historic monument-based on their nature and scope-as special expenses at a rate of 9 percent annually for ten years-totaling 90 percent of the eligible costs. This historic preservation depreciation for owner-occupiers is particularly attractive and is often overlooked.

Another significant advantage concerns the capital gains tax. Profits from the sale of a property within ten years of acquisition are generally taxable. Owner-occupied property is exempt from this rule provided the property was used exclusively for personal residential purposes in the year of sale and in the two preceding calendar years (Section 23(1)(1) Sentence 3 of the Income Tax Act). This exemption can result in significant tax savings as real estate prices rise.

Inheritance and the Wohn-Riester

Under inheritance tax law, the owner-occupied family home enjoys a significant privilege: If the spouse or a child inherits the owner-occupied property and subsequently continues to live there for at least ten years, no inheritance tax is levied on the property’s value (Section 13(1)(4b) and (4c) ErbStG). For children, this exemption is limited to a living area of 200 square meters-any area exceeding this is taxed at the standard rate. If the owner ceases to live in the property before the ten-year period expires, the tax exemption is retroactively revoked, unless there are compelling reasons such as the need for long-term care.

Owner-occupied property also plays a central role in the Wohn-Riester scheme. The state Riester subsidy-allowances and tax benefits-can be used to repay a mortgage or to purchase an owner-occupied property. The capital saved or withdrawn is recorded in a notional housing subsidy account and taxed at retirement age.

Practical Tip for Nuremberg and Franconia

In the Nuremberg metropolitan region, purchase prices have risen significantly in recent years, making the exemption from speculation tax on owner-occupied property particularly valuable. Anyone purchasing an existing property in Nuremberg, Fürth, or Erlangen and moving in themselves should explore the options for energy-efficiency renovation subsidies under Section 35c of the German Income Tax Act (EStG)-Franconian older buildings from the Wilhelminian era and the post-war decades often offer significant renovation potential. For historic buildings, such as those found in large numbers in Nuremberg’s Old Town, Erlangen’s city center, or the historic town centers of the Nuremberg region, it is worth taking a closer look at the historic building depreciation allowance under Section 10f of the German Income Tax Act (EStG). We recommend consulting a tax advisor with real estate experience before purchasing to fully maximize the individual benefits of owner-occupancy.

Frequently Asked Questions

Can I save on taxes at all with owner-occupied property?

Yes, even if the standard depreciation allowance does not apply. The tax reduction for energy-efficient renovations (Section 35c of the German Income Tax Act) allows for tax savings of up to 40,000 euros per property. For historic buildings, the special expenses provision under Section 10f of the German Income Tax Act applies as well. Additionally, the exemption from capital gains tax on a sale within the ten-year period may save five-figure sums under certain circumstances.

What happens to the family home exemption in the event of a divorce?

The family home exemption under inheritance tax law applies only to inheritance, not to divorce. In the event of a divorce, the property is taken into account as part of the equalization of accrued gains. If the house is transferred to the ex-partner, no real estate transfer tax is generally due, provided the transfer is directly related to the divorce. We recommend clarifying the division of real estate assets with a specialist attorney at an early stage.

Do I have to be registered at the property for it to be considered owner-occupied?

Registration alone is not sufficient-the decisive factor is actual use for one’s own residential purposes. In the event of a dispute, the tax office will verify whether the property constitutes the owner’s primary residence. A second home may also be considered owner-occupied under certain conditions if it is regularly inhabited by the owner. For vacation homes that are partially rented out, the owner-occupied status does not apply during the rental periods.

Is it worth buying owner-occupied property in the current Nuremberg market?

Despite interest rate hikes starting in 2022 and slight adjustments to purchase prices, owner-occupied property in the Nuremberg metropolitan region remains a solid long-term decision. In many cases, the monthly cost of interest and principal payments is close to a comparable rent excluding utilities-for a 30-year-old single-family home in Fürth or Schwabach, for example, between 1,800 and 2,500 euros. At the same time, each principal payment builds equity that grows into a substantial asset over decades. For families with long-term roots in the region, the advantages of planning security, design freedom, and wealth accumulation generally outweigh the higher initial costs. We guide homeowners and prospective buyers from the initial assessment through to the notary appointment-free of charge and without pressure.

Support for Owner-Occupied Housing

In addition to tax benefits, there are government support programs specifically designed for owner-occupiers. The KfW offers low-interest loans for energy-efficient construction and renovation (Programs 261, 297/298) as well as the Homeownership Program (Program 124) for the purchase of owner-occupied properties. For families with children, the KfW Homeownership Program for Climate-Friendly New Construction has been available since 2023 with preferential terms. In Bavaria, BayernLabo (Bavarian State Land Credit Institution) provides additional support through the Bavarian Child Homeownership Allowance and its own housing subsidy programs. We recommend reviewing the funding options with an independent financial advisor before making a final financing decision, as the terms and rules regarding how programs can be combined frequently change.

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