Annual property tax

Annual property tax refers to the total annual amount of property tax that an owner must pay to the municipality for their land or property. It is calculated by multiplying the property tax assessment base (determined by the tax office based on the standard value or, starting in 2025, the new property tax value) by the tax rate of the respective municipality. The annual property tax is one of the most significant recurring expenses for property owners and, in the case of rented properties, can be passed on to tenants as operating costs.

Calculation of the Annual Property Tax

The calculation is performed in three steps:

1. Property Tax Value (new federal model starting in 2025; Bavaria has a different state model): The tax office determines a property tax value based on land area, standard land value (under the old law: unit value), building type, and rental value (depending on the state).
2. Property tax assessment base: The property tax value is multiplied by the legally prescribed assessment rate. The assessment rates vary depending on the type of property and the state.
3. Annual property tax: Property tax assessment base × municipal tax rate (in %) = annual property tax.

Example: Bavaria (starting in 2025): Bavaria has introduced its own property tax system (area-based model). For an 80 m² residential building on a 300 m² lot in Nuremberg (tax rate: 555%), the annual property tax amounts to approximately €300-500, depending on the specific calculation model and location.

The 2025 Property Tax Reform and Its Impact

The property tax reform was the most significant change to this tax in decades. In 2018, the Federal Constitutional Court ruled that the use of outdated standard values (some dating back to the 1960s) was unconstitutional. The new law has been in effect nationwide since January 1, 2025:

• Bavaria has introduced the so-called area-based model: Property tax is based on the area of the land and building as well as a flat-rate equivalence factor-without taking standard land values or rental values into account. This is intended to curb tax increases due to rising property values and results in lower taxes in expensive locations (Munich, downtown Nuremberg) compared to the federal model.
• Other federal states largely follow the federal model (value-based), in some cases with their own modifications.
• Some municipalities have adjusted their assessment rates to remain revenue-neutral-but not all. In Nuremberg, the assessment rate for 2025 is expected to remain at 555%.

Pass-through Eligibility and Tax Implications

• Landlords: Property tax is classified as a pass-through operating cost under Annex 2 of the Operating Costs Regulation (BetrKV) and may be fully passed on to the tenant, provided this is agreed upon in the lease agreement (standard wording in lease agreements).
• Income-related expenses: Landlords who pay the tax themselves (without passing it on) can deduct the annual property tax as an income-related expense from their rental income.
• Owner-occupiers: Owner-occupiers cannot claim the property tax for tax purposes (no connection to rental income).

Annual Property Tax and Real Estate Valuation

When valuing investment properties, the annual property tax is one of the few operating costs that the landlord knows directly and can calculate. In the context of the yield calculation, it is deducted from the annual gross income as a non-pass-through management cost-unless passed on to the tenant. For commercial properties, it must be verified whether the property tax is fully passed on to the tenant according to the lease agreement, as commercial leases offer more flexibility in this regard than residential leases.

When purchasing real estate, we recommend requesting the current property tax assessment as part of the purchase documents. This allows the actual annual tax burden to be transparently incorporated into the yield and cash flow calculations.

Practical Tip for Property Owners in Nuremberg and Franconia

In the Nuremberg metropolitan region, the annual property tax is often lower in densely populated downtown areas under the Bavarian area-based model than it was under the old unit value method. Owners in neighborhoods where property values have risen significantly (e.g., St. Sebald, Gostenhof, Erlangen city center) should review the new assessments starting in 2025 and compare them with the old ones. In the event of noticeable increases, we recommend filing an appeal within the deadline (appeal period: 1 month after the property tax assessment is issued).

In some surrounding Franconian municipalities with high assessment rates (in some cases over 400-500%), the annual property tax for larger properties can easily amount to €1,000-2,000 or more-a cost factor that should not be underestimated when calculating investments. We would be happy to connect you with specialized tax advisors in Nuremberg who review property tax assessments for errors.

Frequently Asked Questions

When and how is the annual property tax due?

The annual property tax is generally due in four quarterly installments on February 15, May 15, August 15, and November 15 (Section 28 of the Property Tax Act). Upon request, owners may also be granted a single annual payment due on July 1 if the annual property tax is below a certain amount.

Can property tax be fully passed on to the tenant as a service charge?

Yes, according to the Operating Costs Ordinance, property tax is considered a recoverable service charge. This requires a valid agreement in the lease (e.g., by reference to the BetrKV or explicit mention). It is then offset against the tenant’s advance payments in the year-end statement.

How is the annual property tax in Bavaria calculated under the new area-based model?

In Bavaria, the formula is: Property area × equivalence factor (€0.04/m²) + living area × equivalence factor (€0.50/m²) = equivalence amount. This is multiplied by the tax assessment rate and the municipality’s assessment rate. As a result, land area and living space-not market value-are the decisive factors, which makes Bavaria unique compared to the rest of Germany.

What is the difference between a property tax assessment notice and a property tax assessment notice?

The tax office first issues the property tax assessment notice, which sets the assessment amount. This forms the basis for calculation. The municipality then issues the actual property tax assessment notice, in which the assessment rate is applied and the annual property tax due is determined. Appeals may be filed against both notices-but only through the respective competent procedure.

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