Real estate tax reform 2022: As a property owner, this is what you need to bear in mind

How is property tax calculated?

The amendment to the law also provides for a three-stage procedure for calculating the new property tax in future:

The calculation formula is as follows: Property tax value * tax base * assessment rate = property tax

The actual determination of the property tax value is complex according to the federal model, which is fortunately not binding for the individual federal states. This is mainly due to the fact that the valuation methods proposed in the federal model are value-dependent calculation models.

These valuation methods apply according to the federal model of the property tax reform

For the revaluation of the more than 30 million properties in Germany, the legislator has developed the so-called federal model, which the individual federal states, as mentioned above, are also permitted to structure in other ways.

The calculation method for undeveloped land is still relatively simple. Here, the property tax value is calculated by multiplying the plot area by the standard land value.

The calculation of the property tax value of developed properties is much more complex under the federal model. It is carried out using the capitalized earnings value method and the asset value method. The capitalized earnings value method is used for the valuation of detached and semi-detached houses, rental properties and condominiums, while the asset value method is used for commercial properties, mixed-use properties, partial ownership and other developed properties. Depending on the valuation method, different parameters influence the calculation of the new property tax value according to the federal model. Below you will find a list of the most important parameters for the income capitalization approach and the asset value approach.

Parameters for the income capitalization approach

• Land area
• Standard ground value
• Type and age of the property
• Living space
• Rent level
• Monthly net cold rent in € per m²

Parameters for the asset value method

• Land area
• Standard ground value
• Age of the building
• Gross floor area of the property
• Real estate production costs

According to the federal model, the responsible tax office then determines the property tax value using all of these parameters. The tax assessment figure (0.31 ‰ for family houses and apartments, 0.34 ‰ for all other types of property) is used to determine the tax assessment amount, which the tax office enters together with the property tax value in an assessment notice. The municipality then issues the property tax assessment notice, taking into account the applicable assessment rate.

The good news for all land and property owners in Bavaria: as an alternative to calculating property tax according to the federal model, the individual federal states have been granted the so-called "state opening clause". This means that each federal state decides for itself whether to implement the federal model or a state model with individual property tax laws and procedures. In addition to Baden-Württemberg, Hamburg, Hesse, Lower Saxony, Saarland and Saxony, the Free State of Bavaria also made use of this option and passed its own property tax law on November 24, 2021. The calculation of property tax is much easier in Bavaria compared to the federal model.

How is property tax calculated in Bavaria?

Due to the state opening clause, the calculation of the new property tax may differ from state to state as described above. Bavaria, for example, relies on a pure area model. Due to the 2022 property tax reform, the Bavarian property tax is therefore only calculated based on the area of the land and building and the use of the property. Factors such as the current land and property value, the age of the building or the location therefore play no role. The new property tax in Bavaria is calculated as follows:

Calculation examples for property tax in Bavaria

Example 1: Semi-detached house in Munich
The Weber family lives in a semi-detached house in Munich with a plot area of 500^m2 and a living area of 150^m2. The calculation is as follows:

Step 1: Determining the equivalent amount
For the plot of land: 500^{m2 x} 0.04 € / qm² = 20.00 €
For the building: 150^m2 x 0.5 €/m2⁼ 75.00 €

Step 2: Determination of the Property tax assessment amount

For the land: € 20 x 100 % = € 20.00
For the building: € 75 x 70 % = € 52.50
In total, the property tax assessment amount is € 72.50

Step 3: Determination of the Property tax

The current assessment rate for property tax in Munich is 535%. After rounding down to full cents, the annual property tax is therefore: € 72.50 x 535 % = € 387.87.

Example 2: Condominium in Munich

The Sedlmayer family lives in a condominium in Munich. The property area of the apartment building is 1,300^m2, the co-ownership share is 110/1000 and the living area is 110^m2. The following calculation results:

Step 1: Determination of the equivalent amount

The basic proportion is: 1,300^m2 x 110/1000 = 143^m2. This results in the following equivalent amounts:
For the plot: 143m2^x 0.04 € /m² = 5.72 €
For the building: 110^m2 x 0.5 €/m2⁼ 55.00 €

Step 2: Determination of the Property tax assessment amount

For the land: € 5.72 x 100 % = € 5.72
For the building: € 55 x 70 % = € 38.50

In total, the property tax assessment amount is € 44.22.

Step 3: Determining the property tax
The current assessment rate for property tax in Munich is 535%. After rounding down to full cents, this gives the annual property tax: €44.22 x 535% = €236.57.

How high will the property tax payable be from 2025?

Compared to the previous property tax burden, some owners will experience a positive surprise and will have to pay less property tax, but some owners will also pay significantly more. Generally speaking, a large living space after the property tax reform will have a tax-increasing effect compared to the previous property tax burden.

The assessment rates, which are an essential component of property tax, will continue to be set individually by the municipalities. On the DIHK website you will find an overview of the current assessment rates of the federal states. You can also use the property tax calculator from Haus + Grund München to obtain your estimated property tax burden after the new calculation method comes into force.

Which data you must report to the tax office

As described, the effort for you as a property owner in Bavaria is far less than in most federal states. As the owner of a plot of land or property in Bavaria, the tax office requires you to submit the following data as part of the property tax return:

Plot area and parcel number

You can find the plot area and the parcel number in the land register extract. In the case of condominiums, you can determine the proportionate plot area by multiplying your co-ownership shares according to the land register extract by the total plot area. For example: Your co-ownership shares are 50/1000 and the total plot area is 1000^m2. Your proportionate plot area is therefore: 50/1000 x 1000^{m2 =} 50^m2.

Area of the building

For residential use, the area of the building corresponds to the living space in accordance with the Living Space Ordinance. This includes all areas within the apartment. Balconies, terraces and conservatories are also counted as living space from a quarter to a maximum of half. Cellars, storage rooms and boiler rooms do not generally count as living space. The information on living space can usually be found in the living space calculation enclosed with the building application. In the case of condominiums, the living space is sometimes also noted in the declaration of division.

Why you as an owner need to take action now

Although the laws of the 2022 property tax reform will not apply until 2025, the tax authorities are already demanding new calculation bases as of January 1, 2022. For you as a property owner, this means that you will have to submit a property tax return with the relevant data in the period from July 1, 2022 to January 31, 2023. If you own a property in Bavaria, you may have already received a request to submit a property tax return from the Bavarian State Tax Office. But beware: Not all tax offices always send a letter directly to the owners asking them to submit the "Declaration for the determination of property tax values" . In any case, you must take action yourself and can also complete the relevant forms electronically via the Elster tax portal. Alternatively, you can submit the property tax return via your tax advisor.

Extension of the submission deadline in Bavaria

The Free State of Bavaria has extended the deadline for submitting property tax returns to April 30, 2023.

Conclusion

With the 2022 property tax reform, all land and buildings in Germany will have to be reassessed, as the outdated previous assessment basis leads to unequal treatment of land and property owners. However, the individual federal states can individually design the calculation method defined by the new federal model due to the state opening clause. For Bavaria, this means that instead of the value-based calculation method defined in the federal model, the far simpler area model serves as the basis for calculating the new property tax. The area model uses data based exclusively on the area of the property and the building.

Please note that you as the owner are obliged to submit a property tax return by 31.10.2022.