
What you need to know now about property tax reform
Why is there a property tax reform?
In April 2018, the Federal Constitutional Court declared the previous method of calculating property tax to be unconstitutional. The assessment bases are long outdated. In western Germany, they date back to 1964, and in eastern Germany, they date back to 1935. This results in significant inequalities in tax distribution, which, according to the Federal Constitutional Court, violates the principle of equal treatment. The court set a deadline: a new basis for calculation must be in place by the end of the year. Otherwise, municipalities will no longer be allowed to levy taxes. This would cost them 15 million in tax revenue. However, the new basis for calculation will not come into force until 2025.
What does the grand coalition's draft bill provide for?
Federal Finance Minister Olaf Scholz is responsible for the draft law. He advocated a value-based calculation model that takes into account not only the land and building area but also the standard land value, which varies depending on the location, and the income value, which is derived from (theoretical) rental income. This probably sounds complicated at first. And it is – at least according to opponents of this calculation model. Leading the way is Bavaria's Minister President Markus Söder. He opposed Scholz's draft bill.
The result: the draft law agreed upon by the grand coalition now includes an opening clause for the federal states. Federal states that are not satisfied with Finance Minister Scholz's model can thus create their own basis for calculation. Bavaria, for example, envisages a simple area model. Here, the standard values are much easier to determine: the decisive factors are the land area and the building area. This means that high-value properties in good locations will be subject to the same high taxes as older properties in poorer locations. Scholz, on the other hand, wants his model to achieve a fairer distribution of taxes: those who own expensive properties must also pay more. However, this will be problematic in expensive cities such as Munich. If landlords pass the tax on to their tenants, they will be even more heavily burdened.
What will change for property owners in concrete terms?
The aim of the property tax reform is not to generate more tax revenue for local authorities. The calculation has therefore been adjusted so that the total amount of tax remains the same – it is simply distributed differently among individual property owners. It is therefore not possible to say in general terms whether your taxes will increase or decrease in your specific case. This depends, on the one hand, on how much you have paid so far and, on the other hand, on whether the state in which you live follows the federal regulations or introduces its own model.
Would you like to know how much your property is worth? Contact us now! We will be happy to determine the value for you. Legal notice: This article does not constitute tax or legal advice in individual cases. Please have the facts of your specific case clarified by a lawyer and/or tax advisor.