Munich – Because Thaddäus Spegel deliberately kept his rents significantly below local market rates, the tax office demanded more than 40,000 euros following a 2022 tax audit. The landlord owns over 100 apartments in Munich, with some tenants having lived there for 30 or even 50 years. Several residents also worked for him, maintaining his properties and even carrying out some of the apartment fit-outs themselves. In one instance, Spegel charged just 540 euros a month—or 8.80 euros per square meter—for a 61.28-square-meter unit. The tax office, however, based its assessment on a figure of 1,236.17 euros, or 20.17 euros per square meter. From a tax perspective, the issue involved reduced deductible expenses and, in the case of tenants who were also employees, an additional taxable non-cash benefit. The underlying tax rules remain in effect for 2026.
Rental rates below the benchmark threshold can reduce tax deductions
The fundamental tax rule remains in effect, though the tax authorities now distinguish between three categories. If the rent is less than 50 percent of the customary local market rate, the tax office splits the rental arrangement for tax purposes. Consequently, the owner can only claim a pro-rata share of income-related expenses—such as depreciation, loan interest, and costs for repairs and maintenance.
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If the rent falls between 50 and 66 percent, however, full deductibility of costs depends on a long-term profit forecast. In this process, the tax authorities assess whether the rental arrangement is expected to generate a surplus in the long run. At the 66 percent mark, tax law generally treats a permanently rented apartment as being rented at full market value, meaning full deductibility of income-related expenses is typically preserved.
The comparison is not based solely on the base rent
However, the calculation of the tax-relevant ratio is not based solely on the base rent (Kaltmiete). According to income tax guidelines, the customary local market rent also includes recoverable operating costs. Consequently, the tax authorities compare the agreed gross rent (Warmmiete) with the customary local gross rent. Rising rental prices can thus bring a long-standing, unchanged rent closer to the relevant tax thresholds.
Determining the customary local rent can also be a decisive factor. The Federal Fiscal Court generally prioritizes the use of a suitable local rent index. Furthermore, the mean value of a range specified in such an index does not automatically apply; other values within the stated range can also be considered customary for the area.
Munich Rent Levels Widen Gap with Older Contracts
In Munich, general rent levels are now significantly higher than the rates found in many decades-old contracts. The 2025 rent index (Mietspiegel) lists an average base rent of 15.38 euros per square meter—an increase of 5.5 percent compared to the 2023 index. While this average figure does not automatically determine the comparative value used for tax purposes, rising rents can further widen the gap relative to existing tenancies where rents have remained unchanged for a long time.
According to his own statements, Spegel generally charged between 12.50 and 13.50 euros per square meter in 2022. However, the rate was significantly lower for certain long-term tenants because they had renovated the apartments themselves. Some of these tenants were also his employees and looked after the properties; consequently, the tax assessment of a non-cash benefit played a role in these cases. A deliberately low rent can thus provide financial relief to tenants while simultaneously reducing the tax-deductible expenses for the landlord. This is precisely what makes the case so contentious: the tax authorities are creating a financial incentive for landlords not to let very low existing rents become permanently decoupled from local market rates.
Author: Blackout News
Sources: Merkur (09.06.26) – Finanzverwaltung Nordrhein-Westfalen (Stand: 12.08.26) – Landeshauptstadt München (Stand:12.08.26)