How does a property tax work

Property tax

This is how the property tax works

Udo Reuss
Tax Expert As of January 25, 2019

Udo Reuss

The tax lawyer and business graduate Udo Reuß is responsible for tax issues at Finanztip. Before that, he worked for various business and specialist publishers such as Handelsblatt, F.A.Z.-Verlagsgruppe, Haufe-Lexware and Vogel Business Media - 14 years of which he worked as editor-in-chief of trade magazines. He draws the relevant judgments for tax savers from the complex tax law.

  • For the possession of a piece of land, whether developed or undeveloped, the tax authorities demand property tax. It belongs to the cities and municipalities.

  • Property tax is an annual tax that is due quarterly. Property tax B applies to developed and undeveloped land, property tax A applies to agricultural operations.

  • Landlords usually pass property tax on to tenants. It is lawful.

  • The calculation depends on three parameters: The tax office sets a standard value for the property. This is multiplied by a tax index. It depends on how the property is used. Each municipality applies its individual assessment rate to the tax base determined in this way. This currently varies between 0 and 960 percent.

  • The standard values ​​have remained unchanged for years: in East Germany the year 1935 applies and in West Germany the year 1964. According to the Federal Constitutional Court, this is unconstitutional. The legislature must therefore adopt a new regulation by the end of 2019.

  • Although the assessment of the property tax is unconstitutional, you have to continue to pay it as before: The standard values ​​and the tax assessments prepared on this basis will initially apply until the end of 2019.
  • If the legislature has created a new regulation by then, the criticized evaluation rules will apply until December 31, 2024 at the latest.
  • Due to the municipal tax rate, property tax can be very different in two neighboring municipalities. Inquire about this before deciding where to live.
  • The property tax is set according to the circumstances at the beginning of the year. The person to whom the property is assigned at this point in time owes it for a full year. For example, if you have sold a condominium and want to transfer property tax to the new owner as soon as possible, you should agree to this in a contract.
  • Upon request, the municipality can waive the property tax for the previous year until the end of March. You are entitled to (partial) tax exemption, for example, if, as a landlord, you have had significant loss of rent for which you are not responsible.

As a tax on property ownership, the property tax brings the German cities and municipalities around every year 14 billion euros a. It is not only to be paid by the owners of land and buildings. The 41 million tenants are also affected. Because landlords are allowed to transfer the property tax to them.

However, according to a ruling by the Federal Constitutional Court, the assessment of property tax violates the general principle of equality. By the end of 2019, the legislature must present a new regulation, which will be released no later than January 1, 2025 comes into force.

What is property tax to be paid on?

The tax object is the property. The applies to agricultural and forestry operations Property tax A. For such a business, an economic value is determined on the basis of profitability. In addition, there is a housing value for the part that is used for residential purposes.

The applies to all other properties Property tax B - also for undeveloped. This includes rental and commercial properties, houses, buildings on third-party land, residential property and partial ownership as well as heritable building rights. Such leasehold rights are therefore also considered land.

In practice, tenants also pay property tax because the landlords charge them as ancillary costs and pass them on to their tenants. This is legal if this has been agreed in the rental agreement.

The income from the property tax receives the Municipalities. Therefore, municipalities generally set the property tax in a notice. In Berlin, the tax offices are responsible for this.

The property tax is generally valid for one year and is quarterly to be paid on the 15th of February, May, August and November. The conditions at the beginning of the year are decisive for the tax liability.

As the owner of a condominium, for example, you owe property tax for the entire year. For example, if you sell on September 1st and you want the new owner to bear the property tax payment from November onwards, you should contractually agree this with him.

Our tip: Always stay up to date - with our free newsletter!

Our tip: stay on the topic [category] always up to date - with our free newsletter!

How is property tax calculated?

When it comes to property tax, it does not depend on personal income or performance.

It is made up of three factors:

  1. Unit value,
  2. Tax index and
  3. Rate of assessment of the municipality.

Unit value

The tax offices place one for each property Unit value firmly. This is determined by numerous factors such as the type of property and the age of the house. The unit value is so called because the Valuation Act defines a tax value that should be uniformly usable for different types of tax (including inheritance and wealth tax). Currently, the unit value is used solely for property tax purposes.

In East Germany, the unit values ​​were only determined once, namely in 1935; in West Germany for the last time in 1964. The Assessment Act prescribes an update every six years. That is why the unit values ​​of many properties are completely out of date. They do not in any way reflect the performance of the past decades. As a result, many owners are excessively taxed while others pay far too little tax based on their current value.

The Federal Constitutional Court has therefore considered the regulations for unit assessment to have been at least since 2002 unconstitutional (BVerfG, judgment of April 10, 2018, Az. 1 BvL 11/14, 1 BvL 12/14, 1 BvL 1/15, BvR 639/11, 1 BvR 889/12).

However, because 35 million plots of land have to be reevaluated and this is associated with enormous effort, the legislature has imposed a two-stage deadline. He must create a new regulation by the end of 2019, then the old standard values ​​may continue to be applied until the end of 2024 at the latest. From 2025 at the latest, property tax may no longer be levied on the basis of the outdated unit values. If no political agreement can be reached by December 31, 2019, they may no longer be applied from 2020.

As a result, nothing will change for property taxpayers by the end of 2019. Previous tax assessments and standard values ​​remain valid. In the future, the tax authorities can replace the unit value with another, more realistic tax value or fundamentally change the assessment method for property tax. Various reform models are circulating for this purpose (for example, the cost value model, taking into account the size of the property and the usable area, or the land value model). The Federal Constitutional Court has not given the legislature any requirements in this regard.

Tax index

Currently you need to pay for property tax Tax base be determined. For this, the unit value is marked with a Tax index multiplied. This is nationwide. In western Germany it is between 2.6 and 6 per thousand of the standard value and between 5 and 10 per thousand of the standard value in eastern Germany. For a vacant lot, a condominium or an apartment building, it is, for example, 3.5 per thousand.

Municipal tax rate

The tax assessment amount calculated in this way is then combined with the Rate of assessment of the municipality multiplied. There are a few churches that have set this to 0. The Hessian community of Lautertal, which has a population of 7,000, currently has the highest assessment rate in Germany, at 1,050 percent. Larger cities, Berlin for example, 810 percent, require higher rates for property tax B for building plots. The assessment rate for property tax A is significantly lower everywhere.

The following Examples of the Haus & Grund association show how high the property tax B is currently:

  • Single-family house in Berlin with a plot of 1,000 square meters and a unit value of around 32,500 euros: 920 euros property tax;
  • Apartment building in Berlin-Mitte, unit value around 117,000 euros: 3,321 euros;
  • Apartment building in Dortmund, unit value 1,477 euros: 84 euros;
  • Apartment building in Bad Kreuznach, unit value around 12,100 euros: 169 euros;
  • Apartment building in Mannheim, unit value just under 22,000 euros: 369 euros;
  • Apartment building in Freiburg, unit value over 65,000 euros: 1,369 euros;
  • Single-family house in Lutherstadt Wittenberg, unit value a good 3,900 euros: just under 53 euros.

According to the Berlin tenants' association, tenants currently pay an average of 28 cents per square meter of living space per month for property tax. However, the range is wide. The majority of tenants in Berlin should pay between 14 and 46 cents.

Structural measures can become a Property tax change to lead. This applies, for example, if you are completing an extension to your house, demolishing a building or dividing up your property. The tax office will then adjust the unit value; If the form of use changes, a new property tax index will also be set. The most common reason for a tax change, however, is when the municipality increases the tax rate.

Which objects are tax-exempt?

The real estate tax law finally lists the cases of real estate tax freed are. This is essentially real estate that is used for sovereign, charitable, benevolent or church purposes. There is also no property tax for hospitals, student residences, old people's homes, youth hostels and similar residential facilities.

If only a spatially delimited part is used for such tax-privileged purposes, only this part is exempt from property tax.

Property tax waiver possible

In certain cases you can apply for property tax partially enacted becomes. However, this is only possible on request by March 31st for the property tax of the previous year. You must submit the application to the responsible municipality; in Berlin, Hamburg and Bremen at the tax office.

You can benefit from it if your rented apartment was temporarily vacant and you are not responsible for the loss of rental income. In addition, the rents you ask must be in line with the market.

You are entitled to a 25 percent waiver of property tax if you have earned less than half of the usual annual rent (so-called annual gross rent). If you had no income, the property tax should even be halved. It doesn't depend on your economic circumstances.

This right to property tax waiver exists, for example, if

  • Your tenant is insolvent,
  • You were unable to rent out the apartment despite placing ads or a broker,
  • Your apartment was or was not rentable due to a fire, water damage or some other disaster
  • You own a listed building and have to bear particularly high costs for maintaining or converting it.

Loss of rent due to conversion or renovation measures, however, does not count.

Udo Reuss

Udo Reuss

The tax lawyer and business graduate Udo Reuß is responsible for tax issues at Finanztip. Before that, he worked for various business and specialist publishers such as Handelsblatt, F.A.Z.-Verlagsgruppe, Haufe-Lexware and Vogel Business Media - 14 years of which he worked as editor-in-chief of trade magazines. He draws the relevant judgments for tax savers from the complex tax law.

* What the star means:

With our recommendations, we want to help as many people as possible to do their own finances. This is why our content is available online free of charge. We finance our extensive work with so-called affiliate links. We mark these links with an asterisk (*).

At Finanztip, however, we handle affiliate links differently than other websites. We only link to products that were previously recommended by our independent expert editorial team. Only then can the relevant provider set a link to this offer. We get money if you click on such a link or conclude a contract with the provider.

Whether and in what amount a provider pays us has no influence on our recommendations. What our experts recommend to you depends solely on whether an offer is good for consumers.

You can find more information about how we work on our About Us page.


+++ Pssst! Your newsletter full of savings tips +++

  • Lower your expenses for electricity, rent, cell phones, cars, travel and much more.

  • Don't miss any deadlines for filing your tax return or switching insurance.

  • Free in our Newsletter. Register now!