Property tax reform: what you need to know

The new property tax is calculated using the following values: Property value, tax base and assessment rate

Property values were previously calculated using standard values. However, these are outdated and resulted in different property taxes being charged for similar properties - a clear violation of the principle of equal treatment enshrined in the German Basic Law.

Consequently, in 2018, the Federal Constitutional Court declared the regulations on the standard valuation for the assessment of property tax to be unconstitutional. This means that the assessed value is no longer used to calculate property tax. Instead, a new Property tax value calculated. The tax assessment figures have also been changed. The assessment rates will almost certainly also be adjusted by the municipalities.

Nevertheless, the previous 3-stage procedure for calculating property tax has been retained:

• Stage 1: Determination of the Property tax value
• Stage 2: Application of the Tax base and calculation of the Property tax assessment amount
• 3rd stage: Application of the assessment rate and determination of the Property tax

This results in the calculation formula:
Property tax value x tax base x assessment rate = property tax

The aim of the property tax reform: properties in the same location and of the same size should also pay the same property tax. To achieve this, all properties in Germany will be revalued. The first effective date for the revaluation is January 1, 2022.

In principle, the so-called federal model applies to the calculation of the new property tax. Depending on the property is built on, there are different valuation methods:

• Income capitalization approach: This applies to detached and semi-detached houses, rental properties and residential property.
• Asset value method: This applies to commercial properties, mixed-use properties and other developed properties and to partial ownership.

The valuation undeveloped land is determined quite simply on the basis of the plot area and the standard land value.

The property tax value is determined within the framework of the federal model using various parameters. In the income capitalization approach, these are in particular

• Land area
• Standard land value
• Property type
• Age of the building
• Living space
• Rent level
• Monthly net cold rent in euros/sqm

In the asset value method, the calculation of the property tax value is based on these values, among others:

• Production costs for buildings
• Floor area of building
• Age of the building
• Land area
• Standard land value

Once the property tax value has been determined, the tax base rate is applied to it. Under the federal model, this is 0.31 ‰ for detached and semi-detached houses, apartments and apartment buildings and 0.34 ‰ for all other types of property. This gives the tax assessment amount. Both the property tax value and the tax assessment amount are determined by the tax office in an assessment notice. The property tax assessment notice itself is issued by the municipality as before. It is not yet possible to say how high the property tax payable will be from 2025. This depends above all on the assessment rates set by the municipalities.

The federal model is not applied in all federal states. Through a so-called opening clause Baden-Württemberg, Bavaria, Hamburg, Hesse and Lower Saxony developed their own models to determine the property tax value. Saarland and Saxony generally apply the federal model, but have modified it with regard to the tax base. Regardless of whether the federal model or the state model is used: You will only pay the new property tax from 1.1.2025.

In order to be able to carry out the revaluation, the tax office requires a „declaration for the determination of the property tax value“ for each property. The declaration must be submitted electronically via be submitted via ELSTER. This will be possible from 1.7.2022. The deadline for submitting the declaration is 31.10.2022.

Please note: The request to submit the declaration is usually made by public announcement. Accordingly, you will not receive a letter from the tax office by post. In order for your tax advisor to be able to work for you, they will need various details and documents. You must also give them a power of attorney.

In particular, the following information is required for each property for the declaration to determine the property tax value:

• Location of the property or agricultural and forestry operation
• District, parcel and parcel of land of the property
• Ownership structure
• Property type (undeveloped, residential property, other development)
• Area of the property
• If applicable, living space or floor area of the building
• several municipalities [yes/no]
• Rental property share [numerator/denominator]
• Type of use
• Listed building [yes/no]
• Obligation to terminate, if applicable

You will find the relevant data, for example, in the purchase agreement, the parcel map, the land register sheet, the assessment notice, the property tax assessment notice or the declaration of division. Your tax advisor will then use this information to prepare the declaration to determine the property tax value. Please also send your tax advisor the documents containing the relevant data by e-mail.

If the required property-related data cannot (or can no longer) be found, a cadastral map can be requested from the land surveying office and an extract from the land register from the relevant local court. Our law firm provides support in all process steps with automatic data aggregation from various sources, thus reducing manual data entry.

Still have questions about the reformed property tax?

Do you have any questions or need support? Contact our tax office. We will help you quickly and easily.