Calculating Property Cashflow: Before and After Tax
Yield shows how well a property performs relative to its purchase price. It doesn't tell you whether money is actually left at the end of the month or whether you're topping it up — that's what cashflow shows. For the ongoing viability of a mortgage, it's often the number that matters more.
Cashflow Before Tax
Cashflow before tax is simple: monthly cold rent minus everything that actually goes out — non-recoverable operating costs, plus the interest and principal portions of the mortgage payment.
One point that's easy to miss: both the interest and the principal portion of the mortgage payment factor in here. Principal repayment does build wealth, since it increases your equity in the property — but it still leaves your account every month in real terms, and that's exactly why it belongs in this calculation.
Cashflow After Tax: Depreciation Makes the Difference
The tax office only cares about what counts as a deductible expense. And that's exactly where the tax calculation diverges from plain cashflow:
- Interest is deductible — the interest portion of the mortgage payment reduces taxable rental income.
- Principal repayment isn't — it pays down the loan, but is tax-irrelevant, because it isn't an expense in the real sense, just a shift from cash into equity.
- Depreciation (AfA) is deductible, even though not a single euro actually changes hands for it — a legally fixed percentage of the building's value (excluding the land) can be claimed each year as notional wear and tear.
Tax burden = Taxable income × Personal marginal tax rate
Cashflow after tax = Cashflow before tax − Tax burden
Sounds paradoxical, but it's exactly the lever that makes many buy-to-let properties tax-attractive in the early years: if taxable income comes out negative — common with financed properties, thanks to high interest and depreciation — the "tax burden" in the formula acts like a refund, and after-tax cashflow can end up higher than before-tax cashflow.
Worked Example
Cold rent: €960/month · Operating costs: €150/month · Interest portion: €350/month · Principal portion: €300/month · Depreciation: €200/month · Marginal tax rate: 35%
Cashflow before tax = 960 − 150 − 350 − 300 = €160
Taxable income = 960 − 150 − 350 − 200 = €260 → Tax burden = €260 × 35% = €91
Cashflow after tax = €160 − €91 = €69
After tax, this example leaves €69 a month. Without depreciation, the tax burden would be noticeably higher — one reason back-of-envelope cashflow estimates often come out more pessimistic than they need to be.
Cashflow Before and After Tax — Calculated Automatically
DieImmoKalk works out interest, principal, depreciation, and tax burden directly from your inputs and shows both cashflow figures at a glance, including a 10-year projection.
Try it free nowKeep reading: Tax benefits of a German buy-to-let property — what you can actually deduct →