Property taxes can go down

Property tax: that will change in 2020

Anyone who owns a vacant lot, a house or an apartment cannot avoid them: the annual property tax. How high it is depends on where and how you live. But that may be different in the next few years, because the calculation should change from 2020. But what does that mean exactly?

How does the property tax work?

Anyone who owns a piece of land or part of it (in the case of a condominium) has to pay property tax. It is to be distinguished from the real estate transfer tax, which is charged once on the purchase price when buying real estate. The property tax, however, is due every year. The municipalities collect it on January 1st of each year, the payment is then made in four installments on February 15th, May 15th, August 15th and November 15th.

One distinguishes two types the property tax, which are calculated differently in each case:

  • Property tax A for land from agriculture and forestry
  • Real estate tax B for developed or buildable land and buildings

Does every owner have to pay property tax?

Generally yes. However, in some cases there is a chance that property tax will be waived. This can be the case, for example, if the building under monument conservation and the cost of maintaining it is higher than the income. Owners must apply for land tax waiver. You have until March 31st to apply for the waiver for the previous year. It is also possible to be permanently liberated.

A complete or partial waiver is also possible if an owner rents out a property and has lost rent through no fault of its own. This can happen, for example, if the building was damaged by fire or water damage, but also if the apartment cannot be rented out - for example because there is no demand in the region or rents have fallen sharply.

Can landlords pass property tax on to tenants?

Real estate tax is actually only aimed at the owners of land or real estate. In the case of rented properties, however, you can pass the tax on to the tenants as operating costs.

Who pays property tax after a sale?

The property tax always relates to the respective property. Therefore, their amount does not change when a plot of land, a house or a condominium changes hands. The tax must be paid by the owner on January 1st of the year. If he sells the property or land within the year, the municipality does not collect the tax from the new owner until the following year. However, it is possible that the buyer and seller make an agreement in the sales contract that they pay the property tax for the year on a pro rata basis.

How is property tax calculated under the old system?

The tax offices currently calculate property tax B according to a relatively complicated system. Are important three factors: the unit value, the property tax index and the tax rate. They are multiplied together and give the amount of property tax.

Unit value

The unit value is that Value of a property. Very old property values ​​are used as a yardstick for this. Values ​​from 1964 apply to West Germany and from 1935 to East Germany.

Property tax base number

The real estate tax base is determined by the federal government. It is based on different Properties of the property or the building standing on it. This includes, for example, the size or equipment. The property tax index is a certain proportion of the unit value. If you multiply the two, you have the property tax base. This is then multiplied by the assessment rate.

Did you know that …
... Lautertal im Odenwald had the highest assessment rate for property tax B in Hesse in 2019 at 1,050 percent? Eschborn had the lowest with 140 percent. "
(Source: Federal Statistical Office, 2017)

Rate of assessment

The property tax is levied by the municipalities, not the federal government. While the unit value and property tax index apply throughout Germany, the assessment rate is individually determined by each municipality. This can mean that there are large regional differences in the assessment rate and thus also different levels of property tax. The assessment rate can range from under 100 to over 1,000 percent - depending on where you live.

Why is there a property tax reform?

In 2018 the Federal Constitutional Court adopted the old system for calculating property tax for declared unconstitutional. The background is the unit values, which are based on very old numbers that no longer reflect the current value of a property. The government therefore had to enact a new property tax law by the end of 2019 to reform the tax. However, this will not be implemented immediately; the old calculation system may be used for a transitional period until December 31, 2024. A new property tax will then apply from 2025, which will be calculated according to the reformed system.

In these five year transition period the value of the land must be re-determined. The federal government has until January 1, 2022 to do this. The recalculation should include the standard land value, the area and the average net rent. The plots are then to be revalued every seven years.

The new real estate tax law applies nationwide. The actual calculation with value, tax index and assessment rate remains, but the values ​​are redefined. However, the federal states have the option of choosing a method for calculating property tax that differs from that of the federal government, for example a Surface model. The value of the property or the building does not play a role, but the area and the development are used to determine the property tax.

How will the property tax change after the reform?

Whether you will have to pay more or less property tax from 2025 is not yet foreseeable. A statement in this regard is only possible when the property values ​​have been recalculated, which the federal government has until 2022 to do. In general, the following applies: The municipalities want to keep income from property tax at a similar level. So there should be no general increase, but the assessment rates may have to be adjusted. However, changes can occur in individual cases - the tax can rise, but it can also fall.

Another is planned Property tax C to introduce. It is intended for the taxation of undeveloped, but building-ready land and enables higher tax rates for such areas. This should create an incentive for residential construction. In metropolitan areas like Berlin, it happens that plots that are ready for construction are only bought in order to sell them at a higher price later - in other words, they are purely speculative objects. This approach should become unattractive with the new property tax variant.