Property tax reform 2022 - Real estate in Munich and the surrounding area

An overview of the most important answers

Dear owner, in autumn 2019, the legislator decided on a new assessment basis for property tax. The new regulation is to come into force from 2025.

But what does this mean for you as a property owner? We have compiled the most important questions and answers about the property tax reform for you below.

General information on property tax

What is property tax?

In Germany, property tax is a tax on land and real estate, but also on heritable building rights to domestic properties and their development, which the owner has to pay. In the case of rentals, the property tax can be passed on to the tenants via the operating costs. The collection of property tax is governed by the Property Tax Act (GrStG).

The revenue generated by property tax flows exclusively to the cities and municipalities. It currently amounts to almost 15 billion euros per year. This makes property tax one of the most important sources of income for local authorities. Municipalities need these funds to finance schools, daycare centers, swimming pools and libraries and to make important investments in local infrastructure such as roads, cycle paths and bridges.

Why was a reform of the property tax decided?

The Federal Constitutional Court has declared the current system of property tax assessment unconstitutional, as it treats similar properties differently and thus violates the principle of equal treatment enshrined in the Basic Law. A new statutory regulation will therefore be applied from 01.01.2025. The current calculation of property tax is based on decades-old property values (the so-called standard values): In the west, properties are taken into account according to their value in 1964. In the new federal states, the underlying values are even older, based on assessments from 1935.

These standard values are multiplied by a uniform factor, the so-called tax base, and then by the so-called assessment rate. While the respective tax office determines the tax base via the property tax assessment notice, the assessment rate - and thus ultimately the amount of property tax - is determined independently by the local authorities. Due to the opening clause as part of the property tax reform, the federal states will in future be authorized to enact and implement their own laws on property tax. It is now certain that the majority of the federal states will implement the federal model (in some cases with minor modifications), while some federal states have decided against this and apply their own calculation method, e.g. a pure "area model", a "residential location model" or an "area factor model", which takes into account not only the size of the property but also its location. Irrespective of the above-mentioned model variants, the amount of property tax will continue to be largely determined by the local authorities via the so-called assessment rate. As a result, there may be considerable differences in the property tax burden on individual properties in the individual federal states and municipalities. The federal government only regulates the standard value via the Valuation Act. As the values of land and buildings have developed very differently in both the West and the East since 1935 and 1964 respectively, there are currently serious tax inequalities which, in the opinion of the Federal Constitutional Court, are no longer compatible with the legal basis of property tax. As a result, property tax payments have become decoupled from the actual values of the properties.

Calculation of property tax

The cut-off date for the reassessment of unit values is based on the official standard land values as of January 1, 2022. From 2025, the new property tax values will then apply as the assessment basis as well as the new property tax rates and municipal assessment rates.

When do I have to pay the new property tax?

The property tax calculated on the basis of the respective state model is payable from January 1, 2025. The future amount of the individual property tax cannot yet be specified, as the values of the properties and statistical rent levels must first be determined. It will probably be several years before the specific amount of the future property tax is known.

How will property tax be calculated under the federal model in future*?

The amount of property tax will continue to be calculated according to the following principle:

Property tax value x tax base x assessment rate = property tax

The property tax value is determined by the tax office on the basis of an assessment declaration, the tax base is set by law and the assessment rate is determined by the city or municipality.

*For reasons of clarity, the following explanations are limited to the federal model.

• 1st step: Calculation of the land value: The main factors are the respective value of the land (standard land value) and the amount of the statistically determined net cold rent, which is determined, among other things, by the so-called rent index. This depends, among other things, on the so-called rent level of the respective municipality (the higher the rent level, the higher the rent tends to be in a municipality). Other factors include the plot area, property type and the age of the building. The classification of municipalities into rent levels was carried out by the Federal Ministry of Finance on the basis of data from the Federal Statistical Office on average rents in all 16 federal states.
• 2nd step: Compensation for the increases in value that have arisen by comparing the current values with the values that have not been updated since 1935 or 1964. To this end, the so-called tax base rate - a factor that is important for calculating property tax - will be considerably reduced to around 1/10 of the previous value, i.e. from 0.35% to 0.031% for residential properties (detached and semi-detached houses, rental properties and condominiums) and 0.034% for non-residential properties (commercial properties, mixed-use properties, partial ownership, other developed properties). In addition, social housing as well as communal and cooperative housing will continue to be promoted via property tax. For this reason, companies that make affordable housing possible will receive an additional 25% discount on the tax rate, which will have a tax-reducing effect.
• 3. Step: Adjustment of assessment rates by the municipalities: If the property tax revenue in individual municipalities changes due to the revaluation, they have the option of adjusting their assessment rates and thus ensuring that their overall property tax revenue does not change significantly.

The municipalities have announced that they will do this - because an increase in property tax in particular on the occasion of the constitutionally required revaluation would be politically unpalatable. However, the assessment rate will continue to be a key municipal instrument for determining the level of property tax in the future.

What is the new property tax C?

In addition to property tax A (agricultural) for land owned by forestry and agricultural businesses) and property tax B (construction) for developed and undeveloped land, partial ownership and heritable building rights, the introduction of property tax C is intended to counteract the housing shortage, especially in conurbations. In future, municipalities will be able to set a higher rate for plots of land that are ready for construction but undeveloped if there is no development on them. This so-called property tax C thus makes speculation more expensive and creates financial incentives to actually create living space on plots ready for construction.

Can property tax be deducted from tax?

If the property is rented out, the property tax is tax-deductible; it is deducted in the tax return under "Income from renting and leasing" as part of income-related expenses. Owners who use their property themselves cannot deduct the property tax. In the case of a partial rental, the property tax can be deducted proportionately.

Who is obliged to submit a declaration of assessment?

As the owner of a developed or undeveloped plot of land or a condominium, you must submit a declaration to determine the property tax value. In heritable building right cases, only the heritable building right holder must submit a declaration.

When and how must the declaration of assessment be submitted?

The assessment declaration must be submitted digitally* to the relevant tax office from July 1 to October 31, 2022. This is possible via the online tax office ELSTER (www.elster.de). If you already have a user account (e.g. for your income tax return), you can also use this for property tax; otherwise, you can set this up now at www.elster.de. A digital submission can also be made via other software providers if necessary. The submission of receipts is generally not provided for.

* Only in individual cases (so-called hardship cases) - if electronic submission is economically or personally unreasonable for the taxpayer - is submission in paper form possible. This is particularly the case if the taxpayer does not have the necessary technical equipment, the creation of the technical possibilities for data transmission would only be possible at considerable financial expense or the taxpayer is not or only partially able to use the possibilities of remote data transmission according to their individual knowledge and skills.

Information from the tax office

Which tax office is responsible?

The responsible tax office generally depends on the location of your property and not on your place of residence, which may differ.

What information is required for the declaration of assessment?

As the owner of a residential property, you will receive an information letter with data available to the tax authorities and information to assist you in preparing the assessment declaration. You can transfer the data to the assessment declaration after checking it for completeness and accuracy. This includes, among other things:

File reference Location of the property: Street, house number, zip code and town District(s) and parcel(s) Property area Standard land value Type of property (e.g. Year of construction (only after 1949) Number of apartments and living space Number of garage/underground parking spaces (if available)

This data can be found, for example, in the purchase contract or in the construction documents. To check for completeness and accuracy, use the tax authorities' property tax portal.

If you have any questions, please contact the property tax hotline of your tax office, which you can find on the website of your tax office. You can also find more information on the property tax reform at www.bundesfinanzministerium.de.

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