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Rental property depreciation: how much do you really deduct?
Rate, base, costs: how rental property depreciation really works in Luxembourg, and why a rental loss can cut the tax on your salary.
Once the property is let, the real deductions begin. The star of the show is depreciation: the slice of the building's value you deduct every year. Three things tend to go sideways: the rate, what goes into the base, and above all what doesn't. Let's set them straight.
What rate do you depreciate at?
For a new property completed less than five years ago, the standard rate is 4% a year, on a maximum of two rental properties. More than five years after completion, it drops to 2%.
On top of that comes a special 1% property allowance when the 4% rate applies. Mind the trap: this is not an extra depreciation rate, it's an allowance, a reduction of the taxable base, capped at €10,000 a year (double under joint taxation), and applied automatically by the tax office. The famous "5%" you sometimes hear is really 4% depreciation plus 1% allowance: two different mechanisms that get wrongly added together.
Watch out
The rules for future purchases keep moving. Luxembourg regularly adjusts the tax framework for rental property, with temporary measures that come and go. For a property delivered a few years from now, the exact rate will depend on the law in force at the date of your deed. Worth checking when the time comes.
New in 2026
The "Booster fir de Wunnengsbau" package (presented on 16 July 2026) creates an accelerated depreciation known as "3×6": 6% a year for 6 years as long as the depreciable base stays at or below €600,000 per building. Above that threshold, the rate drops back to 2% on the whole base, with no time limit. Below €600,000 it beats today's 4% regime; above it, it can be less generous. For a 2026 acquisition you choose the old or the new regime; from 1 January 2027 the new regime applies on its own to new acquisitions. Subject to the law being adopted.
What goes into the base, and what doesn't
Depreciation is worked out on the construction, never on the land. The base takes in the building price (excluding land), the notary fees, the registration duty and the VAT, plus any later structural improvements. If the deed doesn't separate out the land price, a lump-sum share is taken for the land.
Two mistakes come up again and again. The first: forgetting the registration duty. It's part of the acquisition costs, so it does belong in the depreciable base. The second: slipping mortgage and financing costs in there. Those don't go into the base; they're deducted elsewhere, as interest and income-related expenses. Mix the two up and you inflate one box while emptying the other.
Beyond the walls
The building isn't the only item. Fixtures and fittings that come with the property can be depreciated separately, over their own useful life, usually shorter than the building's.
Above all, every cost you actually bear to let the place, and that the tenant doesn't reimburse, is deducted in the year you pay it: insurance, management fees, property tax, municipal taxes, upkeep and repairs, contributions to the building's works reserve fund. The ones the tenant reimburses are neutral: neither income nor expense.
An example, with the numbers
Example
Indicative figures, to illustrate the mechanism.
Depreciable base (excluding land): €480,000
Depreciation at 4%: €19,200 per year
Loan interest, year 1: €10,000
Other deductible costs (insurance, management, property tax): €2,000
Total deductible expenses: €31,200
Rent collected: €24,000
Net rental result: €24,000 - €31,200 = -€7,200
On top of this comes the special 1% property allowance, applied automatically by the tax office.
The real lever: the loss
This is where it all plays out. When your deductions exceed your rent, your net rental result turns negative. And that loss reduces your other taxable income, your salary for instance. Put another way, a well-run rental property can lighten the tax on income that has nothing to do with it.
taxx advantage
No need to reach for the calculator. Once you've entered the property details (price, purchase date, land share), taxx.lu works out the depreciable base and the applicable rate, then folds it all into your return.
