Subletting a Room in Your Shared Flat and Taxes: When It Becomes Taxable

Anyone who, as the main tenant, sublets a room in their own shared flat to a flatmate generates income from renting and leasing within the meaning of Section 21 of the German Income Tax Act (EStG). For simplicity, such income stays entirely tax-free up to a threshold of 520 euros a year. Cross that amount, though, and it isn't just the excess that becomes taxable, it's the entire income.

The 520-euro line is a cutoff, not an allowance

The crucial distinction is in the details: a cutoff threshold (Freigrenze) means that once you cross it, the whole amount becomes taxable, not just the part above the line. Under R 21.2(1) of the Income Tax Directives, income from letting out a room of less than 520 euros in a calendar year can, for simplicity, remain untaxed. If the sublet rent, including all shares of ancillary costs, comes to 519 euros a year, it stays entirely tax-free. If it comes to 521 euros, the full 521 euros has to be declared on the tax return, not just the one euro over the line.

What counts toward the 520-euro threshold

The calculation includes not just the bare cold rent for the sublet room, but also a proportional share of ancillary costs, any furnishing surcharge for an already furnished room, and any other payment the sub-tenant makes for the use of the space. Someone charging 40 euros in cold rent plus a 15-euro share of ancillary costs a month, for instance, already reaches 660 euros over twelve months, putting them over the threshold even though the bare cold rent alone would stay under it.

What happens once the threshold is crossed

If sub-letting income crosses the 520-euro line, it must be declared in full on Annex V (Anlage V) of the income tax return. That doesn't automatically mean a high tax bill, though, because a proportional share of expenses can be deducted from the income. These include the main tenant's own rent share attributable to the sublet room by floor area, a proportional share of ancillary costs such as heating, electricity, or internet, repair and upkeep costs for the room, and proportional depreciation on any furniture rented out along with it. In many cases with a modest sublet rent, only a small taxable profit, or even a loss, remains after deducting these costs, and that loss can be offset against other income for tax purposes.

Why subletting off the books is risky

If income from subletting is concealed, or no tax return is filed at all despite an obligation to do so, that counts as tax evasion. Tax offenses can be prosecuted retroactively for up to ten years, so a sub-letting arrangement that goes unreported for years can trigger substantial back payments and interest, even if the individual annual amounts look small on their own. The guide from deutschesmietrecht.de gives a detailed overview of the threshold and the risks of unreported subletting.

The practical takeaway for main tenants in a shared flat

Anyone considering subletting a room as the main tenant should work out, before signing anything, whether the planned sublet rent, including ancillary costs, will exceed the 520-euro annual threshold. If the total stays just under it, no tax liability arises at all. If it lands just over it, it is usually worth documenting the deductible expenses carefully to keep the actual tax burden low, rather than skipping the declaration out of uncertainty.

Conclusion

Income from subletting a shared-flat room stays tax-free up to 520 euros a year; above that, the entire amount becomes taxable, not just the excess. Anyone who crosses the threshold can significantly reduce the tax burden through proportional deductible expenses like rent, ancillary costs, and furniture depreciation.

Frequently Asked Questions

Do I have to declare income from subletting a shared-flat room?

Yes, in principle as income from renting and leasing under Section 21 EStG, unless it stays under the 520-euro annual threshold.

What counts toward the 520-euro threshold?

The cold rent for the room plus a proportional share of ancillary costs and any furnishing surcharge, meaning everything the sub-tenant pays in total.

What happens if I earn 521 euros instead of 520?

Then the entire amount becomes taxable, not just the one euro over the line, because this is a cutoff threshold rather than a tax-free allowance.

What costs can I deduct from taxable sub-letting income?

A proportional share of your own rent, a proportional share of ancillary costs, upkeep costs for the room, and proportional depreciation on furniture rented out with it.

What happens if I don't declare sub-letting income?

That counts as tax evasion and can be prosecuted retroactively for up to ten years, including back payments and interest.

Anyone still looking for their own flat rather than a shared room can browse current listings on Waitly. For the basics of a shared-flat lease, see WG lease agreements. How the deposit splits when a flatmate moves out is explained in Kaution deductions. If a new flatmate is joining instead, see adding a new roommate. For the clauses a shared-flat lease template should really include, see WG lease as a PDF.

More on shared living: downloadable WG lease template, required lease clauses and WG housing basics.