Property tax

Property Tax - Property tax is a real property tax levied by municipalities on the ownership of land and real estate. It is one of the most important sources of revenue for local governments and applies to every property owner in Germany without exception-regardless of whether the property is owner-occupied, rented out, or undeveloped.

Calculation of Property Tax

Property tax is calculated in a three-step process. First, the tax office determines the property tax value (until 2024: unit value) of the property. This value is multiplied by the statutory tax assessment rate, which varies depending on the type of property and the federal state. The result is the property tax assessment amount. Finally, the municipality multiplies the assessment amount by the municipal assessment rate to determine the annual property tax.

There are two types: Property Tax A applies to agricultural and forestry assets, while Property Tax B applies to developed and undeveloped properties-the latter is relevant for the vast majority of property owners.

Property Tax Reform Starting in 2025

The previous calculation based on the unit values from 1964 (West Germany) and 1935 (East Germany) was declared unconstitutional by the Federal Constitutional Court in 2018, as the decades-old values no longer reflect actual conditions. The property tax reform took effect on January 1, 2025.

The federal model assesses properties using a value-based method that takes into account the standard land value, property area, type of real estate, living space, year of construction, and rent levels. Bavaria has made use of the state’s discretion clause and introduced its own area-based model: Here, property tax is calculated exclusively based on the property’s land area and building area, without considering the property’s value. The property tax assessment rate in Bavaria is 0.04 percent for residential space and is thus deliberately set low.

Many municipalities have adjusted their assessment rates as of January 1, 2025, to ensure the reform is revenue-neutral. Nevertheless, for individual properties, there are in some cases significant shifts in the tax burden-depending on the property’s size, location, and type of use.

Property Tax as Pass-Through Operating Costs

Landlords may pass on property tax to tenants as operating costs under the Operating Costs Ordinance, provided this is agreed upon in the lease agreement. Property tax is among the regularly pass-through ancillary costs and is allocated to tenants in the annual operating costs statement according to the agreed allocation formula (usually living space).

If property tax increases-for example, due to an adjustment of the assessment rate or as a result of the reform-the landlord can pass on the additional costs to tenants via the operating costs statement without requiring a separate rent increase.

Practical Tip for Nuremberg and the Metropolitan Region

The City of Nuremberg has adjusted the assessment rate for Property Tax B to the new value as of January 1, 2025. Since Bavaria uses the value-independent area model, owners in expensive locations tend to benefit from the reform, while owners of large properties in less desirable locations may face a heavier burden.

We recommend that all owners carefully review their current property tax assessment and compare it with the values on their property tax return. In particular, information regarding land area and living space should be checked for accuracy, as errors in the return can lead to a permanently excessive tax burden. An appeal against incorrect assessments can be filed within one month.

Frequently Asked Questions

How much is property tax in Nuremberg?

The specific property tax burden depends on the land and building area as well as the assessment rate of the City of Nuremberg. Since Bavaria uses the area-based model, the property value is irrelevant. For a typical condominium with 80 square meters of living space, the annual property tax in Nuremberg is in the low three-digit range-the exact amount is determined by the current assessment rate.

Do I have to pay property tax on an undeveloped plot of land as well?

Yes, Property Tax B applies to all parcels of land-regardless of whether they are developed or undeveloped. For undeveloped parcels that are ready for construction, municipalities may also levy an increased Property Tax C to create incentives for development and make land speculation more difficult. This option was introduced with the property tax reform.

Can property tax be passed on to the tenant?

Yes, property tax is considered a recoverable operating cost under the Operating Costs Ordinance. The prerequisite is that a valid agreement regarding the allocation of operating costs has been included in the lease agreement. If no such agreement exists, the landlord bears the property tax alone and cannot pass it on to the tenant.

Property Tax C as a Tool Against Land Speculation

Property Tax C was introduced with the 2025 property tax reform. It allows municipalities to set a significantly higher assessment rate for plots of land that are ready for development but undeveloped than for developed plots. The goal is to encourage owners to develop their land and to make speculation on building land more difficult. In Nuremberg and other growth areas of the metropolitan region, Property Tax C could become an effective tool in the long term for mobilizing more building land. Whether and to what extent the city of Nuremberg will make use of this option is part of the political discussion.

For investors holding reserves of building land, Property Tax C represents a new risk. Anyone who deliberately keeps a plot ready for development undeveloped must expect a higher ongoing tax burden. This significantly alters the profitability of “land banking” strategies and may increase the pressure to develop or sell properties in a timely manner.

Bavarian Area Model vs. Federal Model: What Does This Mean for Nuremberg Property Owners?

Bavaria is one of several federal states that has made use of the state opt-out clause and introduced its own property tax model. The Bavarian area model assesses land and buildings solely based on their area-the market value of the property plays no role. This means: A high-end condominium in the Erlenstein villa district pays the same amount of property tax as a comparably sized apartment in Langwasser, provided the area and assessment rate are identical. This tends to provide relief for high-priced residential areas but can place a heavier burden on large-area properties in outlying areas than before. Anyone who lived in a large apartment or house before the reform that was assessed at an old (low) unit value must carefully review the new assessment notices on this basis.

How do I verify that my property tax notice is correct?

The new property tax notice is based on the tax assessment notice from the tax office, which is based on the living area (or usable area), property area, and type of use. Owners should check the following details: Does the stated living area match the actual living area calculation? Is the type of use entered correctly (residential vs. commercial)? Is the property area correct according to the cadastre? Errors in the assessment notice-such as an overestimated living area-can lead to a permanently excessive tax burden. Appeals must be filed with the relevant tax office within one month of the notice being issued.

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