Renting to Relatives: The 66% and 50% Lines

Letting to a parent, sibling or adult child below market rent is perfectly legal - § 21 Abs. 2 EStG just sets the price of doing it.

The two thresholds

The comparison is your agreed rent against the ortsübliche Marktmiete, measured warm: the local Kaltmiete plus umlagefähige Betriebskosten, per the NRW tax administration.

• 66% or more: the letting counts as fully paid. Full Werbungskosten deduction, no further test.
• 50% up to under 66%: full deduction only if a Totalüberschussprognose (total-surplus forecast, conventionally run over 30 years) is positive. If it is negative, costs are apportioned to the paid share.
• Under 50%: automatic apportionment. At 45% of market rent you lose 55% of AfA, interest and everything else.

Getting the benchmark right

Use the Bonn Mietspiegel, comparable listings, or a valuer's opinion - and keep the evidence in the file. The 66% line is a cliff edge, not a ramp: 65.5% forfeits the whole safe harbour. Because market rents drift upward, a contract set at exactly 66% today can slip below it within a few years. Review the ratio annually and consider an index or step clause (subject to tenancy-law limits, which are outside this article).

Documentation: the Fremdvergleich

The arrangement must survive an arm's-length comparison:

• A written lease with the usual terms (duration, rent, Nebenkosten, deposit, notice)
• Rent actually transferred by bank transfer, monthly and on time - never offset against a gift or allowance
• A proper annual Betriebskostenabrechnung
• Deposit handled exactly as it would be with a stranger

Cash payments, informal year-end settling up, and missing statements kill more of these cases than the percentage ever does.

Not tax advice - have a Steuerberater check the ratio and, if you are in the 50-66% band, the Prognose, before the lease is signed.