Starting January 1, 2025, a comprehensive reform of property tax in Germany will take effect. By January 31, 2023, property owners were required to submit a tax declaration. But how will the new property tax be calculated, and what steps are necessary now? This article provides a detailed overview and practical tips.
What is Property Tax?
Property tax is a municipal tax levied annually on real estate. There are three types of property tax:
- Property Tax A (Agricultural): For agricultural and forestry land.
- Property Tax B (Building): For developed and developable land, as well as buildings.
- Property Tax C (Undeveloped Land): Introduced with the reform to impose higher taxes on undeveloped land and curb speculation.
For most property owners, Property Tax B is particularly relevant.
Why a Reform?
Previously, property tax was based on outdated standardized values from 1935 (East Germany) and 1964 (West Germany). These outdated values caused significant distortions, as they no longer reflected current market conditions. The Federal Constitutional Court declared this calculation method unconstitutional, necessitating a reform.
New Calculation Basis
From 2025, property tax will be based on new valuation methods. Tax authorities will reassess approximately 35 million properties. The calculation will still involve three steps:
- Property Tax Value: Replacing the previous standardized value, based on factors such as location, area, land value, building type, and construction year.
- Property Tax Assessment Rate: Determines the taxable portion of the property tax value.
- Municipal Multiplier: Set by municipalities and varies widely.
Formula: Property Tax Value x Property Tax Assessment Rate x Municipal Multiplier = Annual Property Tax
What Do Property Owners Need to Do?
Between July 1, 2022, and January 31, 2023, property owners were required to submit a tax declaration. Based on these submissions, tax authorities calculate the new property tax value, and municipalities determine the multiplier. Starting in 2025, owners will pay the new property tax.
Missed Deadline
If the submission deadline was missed, a reminder and new deadline are issued. Failure to provide data on time can result in fines. The tax office may also estimate values, potentially leading to higher tax amounts.
Practical Tips for the Tax Declaration
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Required Information:
- Property area
- Land value
- Living area
- Construction year
- Property location
- Usage type
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Sources: Purchase agreements, land registry extracts, land value portals (e.g., BORIS).
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Assistance: Those unwilling to prepare the declaration themselves can hire a tax consultancy (costs: €200–300).
Changes from the Reform
For Developed Properties
These will be evaluated using the income capitalization method. Tax authorities will multiply net cold rent by the property value, which is based on various criteria.
For Undeveloped Properties
The new Property Tax C allows municipalities to impose higher taxes on these areas.
For Non-Residential Properties
The cost approach will continue to be applied, adding the values of land, buildings, and outdoor facilities.
Who Faces Higher Costs?
- Residents of Large Cities: In expensive areas, the new values may significantly increase.
- Owners of Single-Family Homes: These properties are often assessed higher.
- Owners of Undeveloped Land: The new Property Tax C leads to higher taxes.
Exceptions and Exemptions
- Heritage Properties: Due to high maintenance and renovation costs.
- Vacant Properties: For rental income losses caused by damage or structural issues.
- Non-Profit Organizations: Hospitals, schools, and research institutions.
Affected parties must apply for a tax waiver by March 31 of the following year.
Conclusion
The property tax reform represents a significant change for property owners. Timely and accurate tax declarations can help avoid potential issues. Since the calculation varies by federal state, it is worth gathering information early and seeking professional help if necessary.
