Property Tax Reform

Property Tax Reform - Property tax reform refers to the recalculation of property taxes, effective as of January 1, 2025, based on updated valuation methods, following the Federal Constitutional Court’s ruling that the previous tax base-which relied on outdated unit values-was unconstitutional. Bavaria is the only federal state to have introduced a purely area-based model, in which only the land and building area counts-not the value of the property.

What exactly does property tax reform mean?

The previous property tax was based on so-called unit values, which dated back to 1964 in West Germany and 1935 in East Germany. In April 2018, the Federal Constitutional Court declared this basis for assessment unconstitutional because the decades-old values led to massive inequalities in treatment between comparable properties. The legislature was required to create a new regulation by the end of 2019, to be applied starting January 1, 2025.

The Federal Model (valuation model according to Federal Finance Minister Olaf Scholz) calculates property tax based on the property value, the type of real estate, the area, the standard land value, and a statistically determined net rent excluding utilities. This model is used by the majority of the federal states. Critics complain about its complexity and the high administrative burden, as numerous individual data points must be collected.

Bavaria has made use of the opening clause and introduced its own area-based model (Bavarian Property Tax Act - BayGrStG). This model is deliberately kept simple: Property tax is calculated exclusively based on the area of the land and the area of the building-multiplied by legally defined equivalence factors. The market value, location, and condition of the property play no role. This means: A renovated older building in a prime location in Nuremberg pays the same property tax as a comparably sized, unrenovated property in a less desirable location.

The calculation of the new property tax is carried out in three steps: First, the property tax value (in the federal model) or the equivalence amount (in the Bavarian area model) is determined. This is multiplied by the tax assessment rate to obtain the property tax assessment amount. Finally, the respective municipality applies its individual assessment rate, which determines the actual tax amount. Many municipalities have adjusted their assessment rates to keep the total property tax revenue as revenue-neutral as possible-however, this does not mean that the individual tax burden remains the same for every owner.

Impact on Owners and Tenants

The property tax reform has immediate financial consequences for owners, as the individual tax burden can vary significantly depending on the model and assessment rate. Owners of large plots with small buildings may face a higher tax burden under the Bavarian area-based model, while owners of valuable properties on small plots tend to benefit.

For tenants, it is important to note that property tax can be allocated as an operating cost via the utility bill-this is stipulated by the Operating Costs Ordinance (BetrKV). A higher property tax therefore directly leads to higher utility costs. Owners who rent out their property should factor the new property tax amount into their advance payments early on to avoid additional charges.

Anyone who disagrees with the property tax assessment can file an appeal with the responsible tax office within one month of delivery. The appeal is directed against the tax office’s property tax assessment notice or property tax assessment decision-not against the municipality’s property tax assessment notice, which merely applies the assessment rate.

Practical Tip for Owners in Nuremberg and Franconia

In Bavaria, the area-based model applies, which means a comparatively simple calculation for owners in the Nuremberg metropolitan region. The city of Nuremberg has adjusted its assessment rate for 2025 to keep total revenue stable. Nevertheless, there are noticeable shifts for individual properties-in particular, owners of single-family homes with large lots in outlying areas such as Kornburg, Worzeldorf, or Eibach should carefully review their new notices.

Our network of experts recommends carefully checking the property tax assessment notice and the tax assessment notice from the tax office to ensure the area figures are correct. Incorrect property or living area figures are the most common reason for excessively high tax bills. In case of discrepancies, action should be taken within the one-month appeal period. Owners in surrounding municipalities such as Fürth, Erlangen, Schwabach, or Lauf an der Pegnitz should also compare the respective municipal assessment rates, as these can vary significantly.

Frequently Asked Questions

Does every property owner in Bavaria have to file a property tax return?

Yes, all owners of land and real estate in Bavaria were required to submit a property tax return (assessment declaration) electronically to the tax office via ELSTER. The valuation date was January 1, 2022. Anyone who has not yet submitted the return must expect estimates from the tax office and possible late-filing penalties. In the event of a change in ownership after the cutoff date, the new owner does not need to submit a new return-the update is processed automatically by the authorities.

Can property tax be passed on to tenants?

Yes, property tax is considered a recoverable operating cost under Section 2(1) of the Operating Costs Ordinance. The landlord may pass it on in full to the tenants, provided this is agreed upon in the lease agreement. As a result of the reform, the passed-on property tax may either increase or decrease. Tenants have the right to review the utility bill and inspect the underlying property tax assessment.

What distinguishes the Bavarian model from the federal model?

The Bavarian area-based model takes into account only the area of the land and building-it is value-independent and thus easier to administer. The federal model (value-based model), on the other hand, incorporates the standard land value, the type of property, the year of construction, and a statistically determined rent. In practice, this means: Under the Bavarian model, two properties of the same size pay the same property tax, regardless of location and value. Under the federal model, significant differences can arise even for properties with identical floor areas.

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