Property taxes

Property taxes are taxes levied on a specific item or asset, and their amount is calculated independently of the taxpayer’s personal circumstances (such as income or marital status). In the real estate sector, the two most important property taxes are property tax (on real estate) and business tax (on commercial operations). For property owners and investors, understanding property taxes is essential, as they significantly impact the ongoing operating costs of a property.

Property Tax as the Key Real Property Tax for Property Owners

Property tax is the most important real property tax in the real estate sector. It is levied by municipalities and calculated based on the property tax value (new: following the 2022 property tax reform, effective from 2025), the federal tax assessment amount, and the municipal assessment rate. In Bavaria, the property tax reform introduced a separate state model (area model) that takes into account land area and building area without relying on rents or standard land values. Landlords may pass on property tax to tenants as operating costs (Section 2 of the Operating Costs Regulation); for owner-occupiers, it is a non-deductible personal expense. The amount varies considerably depending on the municipality’s assessment rate-in Nuremberg, the property tax B assessment rate is 555 percent (as of 2025).

The Bavarian area-based model differs fundamentally from the federal model, which applies to most other federal states. While the federal model incorporates standard land values and rent tiers-thereby imposing a heavier burden on higher-value downtown locations-the Bavarian area-based model follows the equivalence principle: every square meter of area is assessed equally, regardless of location. For owners in central Nuremberg locations, this often results in a tax reduction compared to the federal model; owners in outlying areas, however, may face a higher tax burden under certain circumstances. This shift in the tax burden led to significant debate and numerous appeals after the new assessments took effect.

Trade Tax and Its Significance for Real Estate Companies

Trade tax applies to real estate companies engaged in commercial activities-namely, property developers, project developers, commercial real estate brokers, and, under certain circumstances, land dealers who exceed the three-property limit. Private landlords who generate income from renting and leasing are not subject to trade tax, as pure asset management is not considered a commercial enterprise. Real estate funds and REITs, on the other hand, may be subject to trade tax in a specific manner. The trade tax rate in Nuremberg is 427 percent (as of 2025), which represents a mid-range value for a major city in a nationwide comparison.

The three-property limit is particularly relevant for private investors: Anyone who sells more than three properties within five years may be classified by the tax authorities as a commercial real estate dealer and is therefore subject to trade tax on capital gains. Even private rental properties can be classified as commercial business assets if the owner’s entire economic activity is classified as a commercial enterprise. The distinction between private asset management and commercial real estate trading is one of the most complex issues in tax law-tax advice is strongly recommended in this context.

Distinction from Other Taxes in the Real Estate Sector

Property taxes must be distinguished from wealth taxes (such as the former wealth tax) and transfer taxes (such as the real estate transfer tax). Real estate transfer tax-currently 3.5% of the purchase price in Bavaria-is not a property tax but a transaction tax that is levied once upon the transfer of ownership. Income tax and corporate tax are personal or subject-based taxes that take into account an individual’s or entity’s ability to pay. Property taxes, on the other hand, are levied on the asset itself-the property or the business-regardless of whether the owner earns a high or low income.

In the context of real estate returns, the distinction between property taxes and other types of taxes is important: Property tax, as a recurring property tax, directly reduces the net rental yield but is pass-through when the property is rented out. Real estate transfer tax increases the acquisition cost and thus the depreciation base. Income tax on rental income and capital gains, on the other hand, affect the personal tax burden and can be managed through depreciation, business expenses, and holding periods.

Practical Tip for Property Owners in Nuremberg and Franconia

With the property tax reform taking effect in Bavaria starting in 2025, property tax assessments have been recalculated for many owners in the Nuremberg metropolitan region. We recommend that owners compare the new assessments with the old ones and, in the event of significant discrepancies, have the tax office’s calculation reviewed. In Bavaria, the equivalence principle (area model) applies, which means that expensive downtown locations are no longer taxed at a higher rate than outlying locations of the same size-a significant difference from the federal model.

Landlords should verify whether and how they are correctly passing on the changed property tax to their tenants. The operating cost statement must correctly reflect the new property tax, and existing lease agreements should be reviewed with regard to the apportionment clause. In many cases, the new property tax is lower than the old one-a fact that must be taken into account when apportioning costs to avoid charging excessive amounts. We are happy to advise you and assist in assessing the tax implications for your real estate returns.

Frequently Asked Questions

Can property owners challenge the property tax in Bavaria?

Yes. An appeal may be filed within one month against the tax office’s property tax assessment notice and against the municipality’s property tax assessment notice. In Bavaria, there were numerous appeals following the introduction of the new area-based model, particularly from owners who complained of being disadvantaged by the flat-rate calculation. Tax advice is recommended in this area.

Is business tax applicable to vacation rentals in Franconia?

Renting out vacation homes is generally subject to trade tax if hotel-style additional services (breakfast, laundry service, cleaning) are provided. Simply providing living space without additional services is considered private asset management and is exempt from trade tax. However, anyone who professionally operates many vacation homes may fall under the category of commercial activity-in this case, tax advice is necessary.

How much is the property tax for a typical condominium in Nuremberg?

According to the Bavarian area model, property tax is calculated based on the equivalent area (land and building area × equivalence factor) multiplied by the statutory assessment value and the municipality’s assessment rate. For an 80 m² apartment in a Nuremberg apartment building on a 600 m² lot, the new model results in an annual property tax of approximately €200-350 at an assessment rate of 555%-the exact amount depends on the living area, the land share, and the type of building.

What role do property taxes play in real estate valuation?

Property taxes are directly factored into the income approach calculation: In the income approach, non-recoupable portions of the property tax are deducted from gross income as operating costs, which reduces net income and thus the income value. For investors, the amount of property tax is therefore a value-relevant factor that should be considered when comparing different locations. Municipalities with a low tax rate may have higher property values under otherwise identical conditions.

Back to the Real Estate Glossary.