Tax Return for Investment Income: The Complete Guide for Private Investors

Investment income such as interest, dividends and capital gains is subject to capital gains tax of 25 percent plus solidarity surcharge and, if applicable, church tax in Germany. Domestic banks remit this tax automatically. A tax return for investment income via Schedule KAP becomes necessary when no tax has been withheld, for example with foreign securities accounts, or when money can be recovered.

What counts as investment income?

The legislature combines income from capital assets under § 20 of the Income Tax Act. This includes all returns generated from invested money. Anyone who invests privately encounters these returns constantly.

The three most important types of income

• Interest from savings accounts, fixed-term deposits and bonds
• Dividends as profit distributions from joint-stock companies
• Realized capital gains from the sale of securities

Why the distinction matters

Each type of income is treated equally, but the offsetting follows its own rules. Losses from stock transactions can only be offset against stock gains, not against interest or dividends. This separation affects what ultimately remains in the account.

How high is capital gains tax?

A flat rate has applied since January 1, 2009. The bank charges it before the money reaches the investor.

The composition in detail

• 25 percent capital gains tax on the return
• 5.5 percent solidarity surcharge on the tax
• Possibly 8 or 9 percent church tax depending on the federal state

Without church tax, an effective rate of approximately 26.375 percent results. With church tax, the burden increases depending on the federal state to approximately 27.82 to 27.99 percent. Capital gains tax is therefore also called withholding tax: once the tax is withheld, the tax obligation is generally settled.

What the term withholding means

With purely domestic securities accounts, the financial institution handles everything. The investor does not need to take any further action in this case. However, the withholding effect only applies if there are no special cases.

The saver's allowance and exemption order 2024

Every saver is allowed to receive a portion of their income tax-free. Since 2023, this amount has been €1,000 per person and €2,000 for married couples. Until 2022, it was €801 and €1,602 respectively, about one-fifth less.

How the exemption order works

With an exemption order, the investor informs their bank up to what amount it should not withhold tax. A correctly set up exemption order for 2024 ensures that the saver's allowance takes effect directly without involving the tax office.

Distribution across multiple banks

Those who maintain accounts at different institutions should strategically allocate the exemption order for 2024. It makes sense to place the largest share where the highest returns occur. An incorrectly distributed exemption order for 2024 means that tax flows at one place while the allowance remains unused at another.

When a correction is worthwhile

If returns change, the exemption order for 2024 should be adjusted. If it is not fully utilized, overpaid capital gains tax can be recovered via the tax return. An annual review takes little time and avoids unnecessary deductions.

Schedule KAP as the central form of the tax return for investment income

Schedule KAP is used to declare income from capital assets. Since 2011, the form can be filed entirely digitally via ELSTER. Since 2018, there have also been two specialized forms.

The three form variants

• Schedule KAP: for nearly all investment income
• Schedule KAP-INV: mandatory for investment fund shares held at a foreign bank or fund company
• Schedule KAP-BET: for income from a partnership interest, a rather rare case

A separate schedule for each spouse

A widespread misconception concerns married couples. Each partner needs their own Schedule KAP, even with joint filing. Income is recorded on a personal basis and only then consolidated.

When is a tax return for investment income mandatory?

In certain cases, there is no way around filing. Whenever no capital gains tax has been withheld, the investor must take action themselves.

The classic mandatory cases

• Income from foreign banks or securities accounts without automatic tax deduction
• Refund interest from the tax office
• Interest from private loans with standard commercial terms
• Hidden profit distributions

Keep track of foreign securities accounts

Income from foreign institutions is not automatically reported to the German tax office. These amounts must definitely be included in the tax return for investment income, fund-specific in Schedule KAP-INV. Those who forget them risk an adjustment notice.

When voluntary filing is worthwhile

Even without a requirement, a tax return for investment income can pay off. In several situations, investors recover overpaid tax.

Unutilized allowance

If no exemption order is issued, the bank charges tax from the first euro. If the returns are below €1,000, the withheld capital gains tax can be recovered in full.

Request a more favorable assessment

In line 4 of Schedule KAP, a more favorable assessment can be requested. The tax office then compares the personal income tax rate with the 25 percent. If the personal rate is lower, the lower rate applies. This particularly affects students, retirees with small pensions and part-time employees.

Offset losses

Gains and losses from different securities accounts can be consolidated via the tax return. Those who want to use this must request a loss certificate from the respective bank by December 15 of the current year.

Taxing stocks: What investors need to know

Those who want to tax stocks should know the specifics of realized gains. A taxable gain arises only upon sale, not through mere price increases in the account.

The loss bucket for stocks

When taxing stocks, there is a separate allocation pool. Losses from stock sales reduce only gains from other stock sales. This strict separation distinguishes stocks from other securities.

Don't forget worthless stocks

For stocks that have become worthless, the bank does not automatically offset losses. These losses must be manually entered into the tax return. Those who fail to do so forfeit a recognized loss when taxing stocks.

Capture dividends correctly

Dividends flow into the general allocation pool. When taxing stocks, they thus count differently than pure capital gains. The bank's annual tax certificate lists both items separately.

ETF tax return: Special features for funds

Those who invest in funds encounter their own rules when filing an ETF tax return. Since the Investment Tax Reform of 2018, partial exemptions and preliminary assessments apply.

Understanding the preliminary assessment

For accumulating funds, the tax authorities levy a preliminary assessment based on the base interest rate. This was 2.29 percent in 2024 and 2.53 percent in 2025. The preliminary assessment is a key point in every ETF tax return because it can trigger a tax burden even without a sale.

Domestic and foreign securities accounts

If a fund is held in a domestic account, the bank handles the calculation. With foreign custody, the ETF tax return belongs in Schedule KAP-INV, each tranche in its own column. This obligation is easily overlooked.

Use partial exemption

Stock ETFs are partially tax-exempt. For stock funds, 30 percent of returns remain tax-free; for mixed funds, at least 15 percent. This partial exemption is automatically taken into account for domestic accounts. In the ETF tax return, it should be correctly recorded so that no excess tax is charged.

Annual Tax Act 2024: Loss offsetting without limits

An important change concerns total losses. The former limitation of loss offsetting to €20,000 per year for capital investments and derivatives transactions has been eliminated.

What the elimination means

With the elimination of § 20 subsection 6 sentences 5 and 6 of the Income Tax Act, total losses can be retroactively offset without limits against gains from capital assets for all open cases. Those who had high losses in the past benefit significantly.

The non-assessment certificate as an alternative

If total taxable income is below the basic exemption of €12,348 in 2026, a non-assessment certificate can be requested. The bank then does not withhold any capital gains tax.

Who benefits from the non-assessment certificate

Particularly retirees with small pensions and students benefit. The certificate is valid for up to three years and avoids the detour through the tax return.

Common mistakes in the tax return for investment income

Many investors pay more than necessary. Most mistakes result from missing documents or overlooked special cases.

The typical pitfalls

1. Annual tax certificates not kept or submitted
2. Exemption order missing or unfavorably distributed
3. Losses from worthless stocks not reported
4. Foreign income forgotten
5. More favorable assessment not requested
6. Loss certificate requested after December 15

Check tax certificates

Banks make mistakes in tax withholding. Comparing the annual tax certificate with your own records uncovers incorrect amounts and protects against excessive capital gains tax.

Practical tips for filing

With a clear routine, the tax return for investment income becomes manageable. Those who collect early save themselves the search just before the deadline.

Gather documents in time

• Annual tax certificates from all banks and securities accounts
• Documentation for foreign income
• Loss certificates, if requested
• Evidence of private loans

Software makes filling out easier

Programs like WISO Steuern or the ELSTER platform guide you step-by-step through Schedule KAP. They point out missing information and check plausibility.

Keep church tax in mind

Those who are subject to church tax should check whether the bank correctly performs the automatic deduction via the KiStAM procedure. If you object to the automatic deduction, church tax becomes mandatory to declare on Schedule KAP.

Deadlines and key dates at a glance

Filing deadlines depend on personal circumstances. Those who file voluntarily often have more time than those required to file.

Important dates

• Loss certificate: Request by December 15 of the current year
• Mandatory filing with refund interest in 2025: by July 31, 2026
• Non-assessment certificate: Request before the start of the refund period

Frequently asked questions about the taxation of investment income

Must I always report investment income?

No. With purely domestic securities accounts with appropriate exemption order for 2024, the bank handles capital gains tax with finality. However, voluntary filing often pays off.

How do I recover overpaid tax?

Via Schedule KAP. If the allowance was not fully utilized or if your personal rate is below 25 percent, the tax office will refund the difference.

What happens with foreign income?

It belongs in the tax return for investment income because no automatic deduction takes place. Foreign taxes already paid are credited within limits.

Making informed decisions for your own account

Those who know the tax rules avoid costly oversights and recover money owed to them. Aktie.com supports private investors in German-speaking countries with clear investment guides and financial news, so that every decision at the securities account is based on reliable information. A careful look at allowances, loss offsetting and deadlines pays off year after year.