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Tax & Depreciation Letting

Holiday let tax in Germany: the 25% occupancy rule

Last updated: 25 September 2026 · Reading time approx. 8 minutes

A holiday home almost always makes a loss in its first years: heavy depreciation, refurbishment, agency commission, plus weeks without a guest. None of that is a tax problem — as long as the tax office believes a surplus will arrive eventually. And that is exactly where most disputes are decided: not over the size of the costs, but over whether the letting counts as a source of income at all. The yardstick for that is not a figure in the statute but a calculation from case law — and in August 2025 the Federal Fiscal Court (Bundesfinanzhof, BFH) redefined it in one decisive respect.

Why your assessment stays open for years

Under Section 21 (1) sentence 1 no. 1 EStG (Einkommensteuergesetz, the German Income Tax Act), income from letting and leasing is earned by whoever lets a property for consideration — provided they intend to generate a surplus of income over deductible expenses across the expected period of use. Without that intention the letting is irrelevant for tax purposes: the losses disappear, but so does the income.

Because an intention cannot be measured in year one, the tax office often assesses the tax only provisionally. Section 165 (1) sentence 1 AO (Abgabenordnung, the Fiscal Code) allows this "in so far as it is uncertain whether the conditions for the tax to arise have been met", and subsection 2 allows such an assessment to be lifted or amended later. In practice: losses accepted for 2022 can fall away again in 2027. Anyone holding a holiday home therefore collects not only receipts but occupancy data.

Two situations, two yardsticks

Everything turns on one preliminary question: is the property available exclusively to holiday guests, or have you reserved a period for yourself? The answer decides whether you only need to document occupancy days — or a forecast spanning decades.

SituationWhat is testedWhat you must produce
Let to holiday guests only, held available for that purpose the rest of the time Occupancy compared with the locality Occupancy days and the local customary letting time
Self-use reserved — even if unused, even if only in a standard-form contract Surplus forecast Income and cost projection over the forecast period
Local customary letting times cannot be established Surplus forecast as above

The 25% rule — and the period that decides it

In the first situation a presumption works in your favour: if you let exclusively to changing holiday guests and otherwise hold the property available for them, you are treated as acting with the intention to generate income — as long as your own letting time does not fall substantially short of the local customary figure. "Substantially", in the case law, means by at least 25%.

The real dispute is rarely about that threshold and usually about the period it is applied to. A single weak year — a wet summer, a refurbishment, an agency that accidentally fails to list the property — breaks the line easily. In 2025 the BFH therefore clarified that the calculation is not made year by year but across a continuous period of three to five years. That period may precede the years in dispute, include them or end with them — and it is the taxpayer who has to name it, with the figures to match.

YearOwn letting daysLocal customary letting timeDeviation
202196118−18.6%
2022 (refurbishment)71124−42.7%
2023118130−9.2%
2024104126−17.5%
202591122−25.4%
Average 2021–202596.0124.0−22.6%

Taken individually, two of the five years fail — 2022 clearly, 2025 narrowly. Across the five-year average the property sits 22.6% below the local figure and therefore stays on the right side of the line. That is precisely the calculation the lower court had failed to make in the case before the BFH.

Two qualifications that often get lost. According to the case law the threshold is expressly not a rigid value but a simplification meant to accommodate the uncertainties of such a test — it is not a licence to sit at 24.9%. And "letting impediments" are left out of account: periods in which the property demonstrably could not be let do not count against you.

What "local customary" means and where the figure comes from

What gets compared are the individual letting days of your property and the average achieved across the whole locality. "Locality" is not the municipality: depending on the structure of the local holiday-let market it can be an entire tourist region spanning several municipalities, only part of a municipality, or even just a single holiday complex. That definition is the second big lever in a dispute — a region with a long season raises the benchmark and can make your occupancy look poor.

The figure itself usually comes from the state statistical office. There, however, only businesses above a certain number of beds are recorded, which excludes small landlords precisely. On this the BFH decided two things that make the evidence considerably easier to assemble: the data may be used even if it is not published but only accessible on request — and where only a bed-occupancy rate exists, conclusions about the local customary letting time may be drawn from it. A call to the statistical office or the local tourist board is therefore a solid step, not a last resort.

When the forecast comes: 30 years — or fewer

If the presumption does not apply, the intention to generate income is tested by a surplus forecast: income against deductible expenses across the whole forecast period, which is normally taken to be 30 years. Two points about it are decisive and regularly got wrong in self-made calculations.

First, the forecast may only include expenses attributable to periods of actual letting or of holding the property available — so vacancy periods attributable to the letting are included, the weeks of self-use are not. Anyone entering every cost of the year makes the result look worse than it is. How vacancy is treated for tax is covered in our article on deductible expenses during vacancy.

Second, the period is not set in stone. If you intend from the outset to let the property for only a few years and then sell it, the shorter period of actual use of the asset must be applied — which makes a total surplus considerably harder to reach, because the start-up losses are spread over fewer years. An intention to sell voiced early can therefore cost you losses that would otherwise have been accepted; on the tax side of the sale itself, see capital gains tax on a property sale. How to build a defensible income-and-cost calculation is shown in calculating a property's cash flow.

VAT: the holiday let is the exception

Residential letting is exempt from VAT — a holiday let is not. Section 4 no. 12 UStG (Umsatzsteuergesetz, the VAT Act) expressly removes from the exemption the letting of living and sleeping rooms "which a trader holds available for the short-term accommodation of strangers". The statute names no limit in days or months; what matters is that the rooms are held available for short-term accommodation.

The rate is reduced in return: 7% instead of the standard 19% (Section 12 (2) no. 11 UStG). The reduction covers the accommodation itself only — services that do not directly serve the letting stay at the standard rate, and they do so even when they are included in the price. Anyone bundling breakfast or a final clean into a flat rate therefore has two tax rates in one price.

Many private landlords stay out of it all the same: under Section 19 (1) UStG the turnover is exempt if total turnover did not exceed EUR 25,000 in the preceding calendar year and does not exceed EUR 100,000 in the current one. Waiving this small-business rule binds you for five calendar years — it can pay off when a large refurbishment with input VAT is coming, and is therefore not a formality. On the option to tax in commercial letting, see the VAT option.

This article deals with the normal case of income from letting and leasing. If the property is offered hotel-style with extensive additional services, the classification may differ — that is a separate assessment and is not covered here.

What the courts have decided

The 25% rule appears in no statute. It is entirely judge-made law, and three decisions of the 9th Senate of the BFH determine how it is applied.

BFH, judgment of 12 August 2025 – IX R 23/24 (officially published)

The current leading decision. It confirms the presumption of an intention to generate income as long as the local customary letting time is not undercut "substantially (that is, by at least 25%)" — and for the first time fixes the reference frame in the operative holding: in order to "keep the influence of temporary factors as small as possible", the "average occupancy of the holiday home over a continuous period of three to five years" must be used. The lower court had looked at two disputed years in isolation and denied the intention; the Senate set that judgment aside. For owners this means: a bad year is no argument against you as long as you can produce the multi-year average — and the burden of presenting it is yours.

BFH, judgment of 26 May 2020 – IX R 33/19 (officially published)

The decision on the evidence. What gets compared are "the individual letting times of the respective property to holiday guests" and those "achieved on average across the locality as a whole". For that the court may draw on comparative data from a statistical office "even where those figures are not published generally for the locality concerned but are made accessible only on request", and: "bed occupancy can permit conclusions as to the local customary letting time." So if the statistical office gives you nothing but an occupancy rate, you still have a usable basis.

BFH, judgment of 16 April 2013 – IX R 26/11 (officially published)

The costliest trap, and it sits in the small print of the letting-agency contract. The intention to generate income must be examined "as soon as the taxpayer has reserved a period of self-use, irrespective of whether, when and to what extent he actually makes use of his right of personal use or not". And it "is immaterial whether the reservation of self-use arises from an individually agreed contractual term or from a standard-form model contract". A clause in the agency's standard contract granting you four weeks of personal use therefore costs you the presumption — even if you never turned up.

Frequently asked questions

Does the 66% threshold in Section 21 (2) EStG apply to a holiday let?

No. That rule concerns the relationship between the rent charged and the local market rent and applies to long-term residential letting: below 50% of the local market rent the use is split into a paid and an unpaid part, and from 66% the letting counts as fully paid. For a holiday let it is not the level of the price that decides but the letting time. The thresholds in Section 21 (2) EStG are explained in our article on letting below market rent to relatives.

How do I prove the property was "held available"?

With anything showing it was on the market and available to any interested party: the agency contract, portal listings with an availability calendar, booking enquiries — including declined ones, provided the reason was not private use. A property offered only to acquaintances is not treated as equivalent to a long-term landlord's activity.

What if I only spend one week a year there myself?

Then under the case law the presumption is already spent; the extent does not matter. That is not a prohibition but a shift in the burden of proof: you then need a surplus forecast. Anyone wanting to secure the loss deduction in the start-up years is better off waiving personal use contractually — and checking the agency contract for that, not just their own practice.

Which occupancy data should I keep?

Per year: letting days, vacancy days with the reason, days of self-use, plus the local customary letting time or occupancy rate recorded by the state statistical office for the same period. Because the comparison runs over three to five years and assessments stay provisional, it is the completeness of that series that later decides the loss deduction.

Occupancy data, receipts and depreciation per property

RenoDiary brings purchase price, depreciation, tradespeople's invoices and running costs together per property — and prepares the figures for the German Anlage V.

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Sources

This article offers general orientation and does not replace individual tax or legal advice within the meaning of Section 3 StBerG. Whether an intention to generate income is recognised depends on the individual case; the occupancy and benchmark figures in the table are a worked illustration and no assurance of an outcome.