Property tax reform: This is what property owners need to do now

Real estate owners and tax consultants are probably not too enthusiastic: Germany is getting a new property tax. The reform will only take effect in 2025 – in other words: in three years the tax office will collect money for the first time according to the new rules. But since many millions of properties, houses and apartments are affected, implementation will take time. It is important for owners of real estate: They must report the data to the tax office this year, according to which the tax will then be recalculated. You can’t ignore it – there are penalties if you don’t do it or if you do it too late.

Here is an overview of the property tax reform and the tasks for citizens that are associated with it.

The property tax was reformed – why at all?

The reform of the property tax was made necessary by a judgment of the Federal Constitutional Court. On April 10, 2018, the Karlsruhe judges decided that the previous property tax was unconstitutional because the basis for assessment was completely outdated. The tax violated the equality principle of the Basic Law, it was said to justify. Because the data for the calculation dates far back from the previous century: in West Germany from 1964 and in East Germany from 1935.

The judges were particularly bothered by the fact that the previous taxation had little to do with the actual real estate values. In addition, because of the outdated calculation bases, the Treasury collected taxes, sometimes at completely different levels, for apparently equivalent possessions. At the end of 2019, the property tax reform law was passed – not only did the old situation end, but also a political dispute about this tax that had lasted for one and a half decades.

Why does the property tax reform only come into force in 2025?

The organization all around is a mammoth project. A total of 35 million properties have to be revalued in Germany – a lot of work for tax offices, tax consultants, citizens and communities. The valuations must be available by the end of 2024 so that the new property tax can be levied for the first time in early 2025. Ultimately, the reform affects all Germans – regardless of whether they own a house with a garden, a piece of land, a forest or an undeveloped property that could be built on. As before, tenants are also affected by the ancillary cost billing.

At the same time, the tax offices continue to switch to the electronic transmission of data, which also takes time. The necessary data should probably only be transmitted electronically. However, the module in the Elster form required for this should not be available until July.

This nationwide collection of data will not be the last: the reassessments are to be carried out every seven years in the future.

What should property owners do now?

Tax consultants are currently calling on their clients to collect the necessary documents for the revaluation of the property. The data is relevant for the property tax return, which the tax authorities are expected to request within the first half of the year. According to the current status of planning, landowners will then have to submit the so-called declarations of determination between the beginning of July and the end of October. This will contain all the information needed to re-evaluate the property. The tax offices will probably set a deadline of one month for the transmission.

Data on the type of building, the location of the property and its size and the standard land value are required. The year of manufacture is also relevant. The data relates to January 1, 2022. The decisive factor is who owned the property, land, forest or meadow at that time.

However, it varies from state to state as to what information must be provided. The basis for this is an opening clause for the federal states in the law.

You should not ignore or postpone the authorities’ request – fines and surcharges for delays of up to 25,000 euros are threatened. It is therefore advisable to have documents such as the purchase contract or the excerpt from the land register ready.

Will I have to pay more property tax in the future?

That’s debatable at the moment. Currently, for example, owners of single-family houses in the West pay an average of a few hundred euros per year, owners of apartment buildings four-digit amounts. Responsible for the new law at the time was Olaf Scholz (SPD), then Finance Minister and current Chancellor, who promised that the tax would be revenue-neutral – in other words: tax revenue should remain roughly the same and certainly not explode.

In the current debate, however, many observers express the fear that citizens will have to pay more. How high the property tax is for each individual is ultimately decided by the municipalities with the so-called assessment rate. The municipalities want to “adjust” these rates, they say, in order to avoid increases or at least to keep their total income from property taxes at the current level. Of course, this does not rule out changes for individual taxpayers.

And it is also an open question whether the total tax revenue will not increase after all. Finally, the reform of the property tax should serve to assess property more realistically. And anyone who has observed real estate and land prices in recent months and years knows that things have always gone up – even in very rural locations. In any case, the annual property tax is one of the most important sources of income for the municipalities. Lower Saxony, for example, received around 1.4 billion euros in 2020 for buildable and developed land.

Speaking of “buildable” plots: owners of undeveloped plots of land that are suitable for building houses and apartments will probably have to be prepared for higher taxes in any case. In this way, the legislator wants to set incentives for the creation of living space – which basically contradicts climate protection, but that’s another topic.

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