What is the 66 percent rule for renting?

If you rent a home for at least 66% of the local market rent, the rental counts as fully paid — you can deduct expenses in full. This is especially important when renting to relatives, which is often done more cheaply.

What happens if the rent is below 50%?

If the rent is below 50% of the local rent, the tax office splits the rental into a paid and an unpaid part. You can then deduct the expenses only proportionally — in the ratio of the rent paid to the local rent.

What applies between 50 and 66 percent?

If the rent is between 50% and 66% of the local rent, the tax office requires a total-surplus forecast. If it's positive, the expenses are fully deductible; if it's negative, only a proportional share is recognised.

What does the tax office look for when renting to relatives?

The lease must be arranged and actually carried out like one between strangers: a written contract, the agreed rent regularly transferred, utility costs settled. Only then does the tax office recognise the tenancy for tax purposes.

Reduced Rent to Relatives: The 66% Rule 2026 (Germany)

Rent the home cheaply to your daughter or your parents — and still deduct the full costs? That’s possible, but only if you keep one percentage in view. The 66% rule decides whether your expenses count in full or only proportionally. This guide shows how to do it right.

In short: If you rent for at least 66% of the local rent, the expenses are fully deductible (§21(2) EStG). Below 50% it’s proportionally reduced. In between (50–66%) a total-surplus forecast decides. With relatives, the lease must be arm’s length and actually carried out.

The 66% rule in detail

When renting — especially to relatives — what matters is the ratio of agreed rent to local market rent:

Rent (% of local)	Expenses
≥ 66%	fully deductible
50% – < 66%	fully, if total-surplus forecast positive
< 50%	only proportionally deductible

The “local rent” is the cold rent plus chargeable costs (warm rent) for a comparable home — determined, for example, via the rent index (Mietspiegel).

Why this matters so much with relatives

Parents often deliberately rent cheaply to their children. Without the rule, the tax office would split the rental into a paid and a gifted part — and reduce the expenses. With at least 66%, the full expense deduction is preserved, even though you rent more cheaply than the market.

The total-surplus forecast (50–66%)

If the rent is between 50% and 66%, you must prepare a total-surplus forecast over 30 years: do the expected income exceed the expenses?

Positive → full expenses
Negative → only proportional deduction

This forecast is laborious — so it’s simpler to stay at 66% or above from the start.

Worked example

Mr Becker rents a flat to his daughter. Local warm rent: €900. His expenses (interest, depreciation, maintenance): €8,000/year.

Option A: rent €600 = 66.7% → fully deductible: €8,000 expenses
Option B: rent €400 = 44.4% → only 44.4% deductible: €3,555 expenses

The €200 less rent in option B costs him about €4,450 less in deductible expenses — a bad deal. The 66% limit is real money here.

What the tax office looks for

For the tenancy with relatives to be recognised, it must be arm’s length (fremdüblich):

a written lease like one between strangers
the rent is actually and regularly transferred (no offsetting, no cash “in hand”)
utility costs are settled

If the actual execution is missing, the tax office doesn’t recognise the tenancy — and strikes the expenses entirely.

Common mistakes

Renting below 66% needlessly. Just under it costs the full deduction.
Confusing warm and cold rent. The benchmark is the local warm rent.
Not transferring the rent. Cash to your daughter isn’t arm’s length.
Ignoring the rent index. Without a comparison value, the 66% can’t be proven.

How to record the running costs correctly is in Rental income and Anlage V 2026. For an inherited or gifted property, inheritance and gift tax is also relevant.

How Restio helps

Whether your rent is above or below the 66% limit decides thousands of euros in expenses — but is quickly worked out. Restio does it for you:

Check the limit — enter the agreed and local rent, and Restio shows whether you’re in full deduction.
Estimate the consequences — Restio works out how much in expenses is deductible at your rent level.
Instant answers — ask in English or German: “Is the rent to my son enough for full deduction?” or “What’s the local rent?”

For the total-surplus forecast and arm’s-length arrangement, a tax advisor helps — Restio provides the figures so the conversation gets concrete.

Renting cheaply to relatives and deducting in full is no contradiction — as long as you keep the 66% limit and run the contract cleanly. Those who slip just below give away real money. The legal basis is in §21 EStG.