Property tax assessment rates
The property tax distinguishes between two rates of levy:
- The property tax A is levied on agricultural and forestry land.
- Property tax B applies to all other buildings and undeveloped land.
Current property tax rates
The following interactive map of the Federal Statistical Office provides an overview of the current property tax rates for all municipalities in Germany. You can select the tax type in the upper area and then move the mouse over desired regions to display the current property tax rates.
In addition to the tax aspects, of course, the financing of the property itself is of crucial importance. Compare therefore now the daily updated conditions of selected offerers for mortgage lending.
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What is the unit value?
There are two options for determining the unit value. On the one hand, the yield value method can be used as the basis for the annual gross rent. The legal basis for this can be found in Section 185 ff. Of the Valuation Act (BewG).
The asset value method (§ 189 BewG.) Is an alternative to the capitalized earnings method. The material value procedure applies if the income value of a building can not be determined. In the real value method, the tax office adds together the land value, the building value and the value of the outdoor facilities.
In the case of an undeveloped property, the sales value is taken as the basis. However, this is the only exception for which the market value is used. As a rule, the unit value and the market value are not identical.
In order to determine the unit value for a new building, the client must provide the tax office with the necessary information by means of a form.
The standard value adjustment screw for the basic control lowering
When purchasing a property, it is worthwhile to question the amount of the future property tax. It can not be ruled out that the responsible tax office has set the unit value too high.
For example, discounts are possible if the terraced house is on a plot of less than 250 square meters, in the seventies still quite common. A flight path also leads to an impairment in the course of determining the earnings. The same applies to intermittent construction defects.
In principle, a change in the property tax can be made if there are massive deviations in the recalculation of the unit value. These deviations are given in
- a deviation of more than 10 percent, thereby
- more than 250 USD down
- more than 2,500 USD upwards
- more than 50,000 USD, regardless of the percentage deviation
Unit value – outdated instrument for calculating property tax
The countries have been discussing for 15 years now that the property tax calculation needs to be reformed. The unit values of the objects are anything but current, based in West Germany on the basis of 1964, in East Germany on the basis of 1935. This means that the unit value ranks in most cases only between 10 and 24 percent of the actual market value.
For discussion, a North and a South proposal as well as the Thuringian model are on the table. While the northern federal states favor a property tax based on market value, the south tends to base its calculation on a basis of area. Thuringia seeks a middle ground between the two approaches – so it may take some time.
The requirements for a new taxation model are high. For one thing, the tax revenues for the municipalities should not fall. Secondly, the administrative burden should be kept as low as possible. Thirdly, the area utilization of land and soil should be optimized.
The property tax reform
Currently, the words of property tax reform hovers over the German housing market and affects both tenants and self-users alike. What is going on there?
Already in 2009, the Federal Finance Court found that the current treatment of property tax was unconstitutional, as it violated the principle of equality under Article 3 (1) of the Basic Law. (1)
Background is the different taxation of real estate in the eastern German states and the West German. While the guideline value of 1964 forms the basis of taxation in West Germany, it is based on the values of 1935 in the eastern German states. Detached from the tax rate of the respective municipality, we can assume that the land tax in East Germany is predominantly lower than in western Germany.
Property tax is the most important source of income for the federal states. In 2017, German municipalities received around 14 billion USD in property tax. Depending on the region, there were clear differences for a comparable property:
- Potsdam 126 USD
- Dresden 211 USD
- Berlin 227 USD
- Hamburg 250 USD
- Frankfurt am Main 305 USD.
The numbers mentioned are annual values. The calculation of the property tax amount is initially based on the value of the land, which is determined from the (possible) rental income. This value is now multiplied by the measurement number. This results from the type, size and nature of the property.
Finally, a multiplication with the community-dependent Hebesatz takes place. In West Germany, this is on average 455 percent, in Berlin 810 percent. The absurd thing about Berlin is the significantly different levels of property tax, depending on whether the property is in the former East Berlin or West Berlin.
Apart from the unequal treatment between West and East, another circumstance is under discussion: The building values, especially for new buildings, are well above the theoretical design values of 1964 and 1935. Against this background, the judges in Karlsruhe demanded a revision of the assessment basis for around 35 Millions of properties in Germany.
Now, the Federal Court finally took up the matter and announced on April 10, 1818 his verdict: The assessment of the property tax was unconstitutional. The reason contains the facts already mentioned here. Now a new regulation has to be established, namely until 2019. If this deadline is exceeded unused, the current rule will become obsolete. What happens then has not yet been published. A transitional reassessment should apply until the end of 2024. In a next step, it must therefore be decided which concrete assessment method should be used.
Ulrich Silberbach, head of the civil servants’ association dbb, worries about additional financial burdens for home ownership that could be accompanied by new regulations. If this happens, not only property owners will be asked to pay. Rather, landlords will move the increased tax costs on the additional costs of their tenants.
What would be the consequences of an adjustment?
If everything stayed the same, the current excitement would be superfluous. Tenant associations and the owners’ association “House and Ground”, however, have the worst fears. Thus, “Haus und Grund” undertook 500 model calculations for real estate throughout Germany. (2)
The basis of calculation shall be a mixed calculation of land value and a building component. An example calculation for a terraced house in the Rhine-Main area should make the fictitious owner little joy. The starting point was a plot size of 295 square meters and a living area of 140 square meters. The property tax would rise from currently 256 USD a year to more than 2,000 USD a year. (3)
Redistribution without additional burden
The examples given here make it clear that such a reform, as intended, would really act as a fire-accelerant in the housing market. As property tax is one of the recoverable ancillary costs, the warm rent would explode. The run on small apartments with low intrinsic value would be the result, four-room apartments in metropolitan areas priceless even with low rent.
What about the homeowner? The own, debt-free, real estate as part of the pension would suddenly break monthly holes of about two hundred USD in the budget, as the example above from main-reign illustrates.
Possibly for one or the other pensioner own property would be no longer tenable. Many potential buyers would have to refrain from a purchase or construction project due to the property tax burden.
The tenants’ association is already calling for the land tax to be taken out of the allocable ancillary costs and for this purpose to burden the owners of owner-occupied property more heavily. The basis for this would be a pure taxation of land, not the real estate. (4)
Property obligation – but would force one or the other landlord to part with his property, if the property tax payment would level the rental yield in the best case. Suppose that in the example of the residential building in Berlin-Mitte, the rent per housing unit is 700 USD, if there were any interest of the landlord to keep the house on.
What options are available for the property tax reform?
Of course, it would be desirable if the legislature were able to establish tax equity in relation to property tax. How difficult this is, however, is shown by the three taxation models currently under discussion.
The market value model
This model would be catastrophic for the owners of the apartment building in Berlin. The calculation of the tax is based on the market value of the property and the property.
Even if an older house, for a property developer only good for the demolition good, little weight, the value of the property would break the neck of a normal earner in terms of taxation.
The equivalence model
The equivalence model does not consider the value of the property or the property. Both the building and the property will be allocated a lump sum per square meter. The product of square meter and lump sum gives the taxable amount.
The advantage would be that market changes, whether upwards or downwards, would not affect the tax liability, in contrast to the market value model.
The land value model
The land value model is based solely on the value of the land, regardless of whether a high-rise, a carport or nothing stands on it. On the one hand, it would put owners of developed and undeveloped land equal. This would also punish those who for reasons of speculation have left fallow land in high-quality locations.
On the other hand, it would be a financial challenge for single-family homeowners with older properties and relatively large properties from times when they were still commonplace.
Anyone who owns a single-family home built in 1930 on a 600 m² plot in the Frankfurt district of the poets would have a problem.
Perhaps the best alternative to the real estate tax reform
The Ifo Institute in Munich favors the equivalence model as it brings with it the greatest tax fairness. The Federal Association of German economists and business economists sees another solution: simply abolish the property tax.
An approximation of the calculation basis of East and West Germany is to be welcomed. That is indisputable. Whatever the decision of the Federal Constitutional Court, whenever the real estate tax reform will take effect is currently still questionable.
However, if politicians decide to knit with a pinch, the housing market will become even more of a theater of war than it already is. Even if tenants and owners of self-occupied real estate then sit in a boat, the ditch should go further apart, as it is already torn open due to the ever increasing burdens on tenants.