Market & Figures / 12-07-2022
Real estate tax reform 2022
A letter from the tax office is in your letterbox. And yet the 2021 tax return has not even been filed yet. Hopefully not a reminder or even worse! Luckily, nothing of the sort – except that another bit of red tape has to be dealt with: the real estate tax declaration.
2022 real estate tax declaration – key tips
Tax returns are not people’s favorite way of spending their time. And this year brings another task for all real estate owners: the real estate tax declaration, officially known as a tax assessment. Lots of people procrastinate – a well-known response to the tax return every year. But, in this case you cannot wait until next year, only until October, 31. So, what do owners of multiple family dwellings and residential complexes need to know, heed – and do?
What is real estate tax?
Real estate tax is collected on all real estate property. This includes plots of land and buildings and also agricultural and forestry enterprises. It is paid by the owners – and apportioned to tenants via the operating costs settlement if the property is rented. Real estate tax is an important source of income for towns and municipalities (about 15 billion a year). Nevertheless, the legislation for it is passed by the federal parliament, adapted by the individual states before the towns/communities add a multiplier rate of their own.
What has happened – why a real estate tax reform?
But first things first: Why do real estate owners have to complete a new form this year, in the first place? The Federal Constitutional Court set the federal lawmakers a deadline by the end of 2019 to fundamentally reform real estate tax. For it had become unconstitutional. The last reform was so long ago that many inconsistencies and above all inequities have since arisen. Comparable properties are treated differently. In addition, there has been a massive contrast between the east and west of Germany. The previous calculation of real estate tax is based on decades old property values (known as unit values). In the west on the basis of 1964, in the east of Germany as far back as 1935. It is no secret that the actual values of plots of land and buildings have changed, rendering a nigh-on 90-year-old basis unsuitable.
Individual state law applies
Legislative competence lies with the federal parliament, as has been laid down in the German constitution. However, the real estate tax reform has given the individual states the right to introduce their own state legislation which may differ from the federal law – of which Baden-Württemberg, Bavaria, Hamburg, Hesse and Lower Saxony have taken advantage. Saarland and Saxony are applying the federal model, albeit with different assessment factors. As an entirely new innovation, communities have now been granted the right to apply a higher multiplier rate for undeveloped plots of land ready for construction. This arrangement is meant to prevent speculation or at least make it more expensive.
The real estate tax declaration: deadlines and dates
The real estate tax declaration can be filed from July 1, 2022 and must be made by October 31, 2022. However, real estate tax will continue to be collected in its current form until the end of 2024. From 2025 onwards, new legislation will then new apply – and a new computation basis, for which the state now needs the data to determine it. From property owners. The reference date for the “declaration on the determination of the property rate” is January 1, 2022. Because of this approach, the future size of the pertinent real estate tax is also still completely unknown. Because firstly, the values of the plots have to be determined. The actual size of the individual real estate taxes will probably be known only in the autumn of 2024.
So that some 90 years do not pass once again before new data are collected, the Federal Constitutional Court’s ruling also called for an updating of the valuation – which from now on is to take place every seven years, largely automatically.
The real estate tax declaration
In future, real estate tax will be calculated on the basis of a few parameters which are relatively easy to ascertain. Nevertheless, a bit of research will be necessary – work which could be delegated to a facility manager who can offer this as a service for property owners. As a rule, these work for a large number of buildings and owners and can collect and process the data most efficiently – in return for a fee, of course, as this is not part of a facility manager’s standard duties. In multiple family dwellings, facility managers assume no more than five minutes work per residential unit, so that the costs are accordingly low. Especially when compared with the hours this may take for individual research and work.
There are five parameters for computing the real estate tax for residential properties: plot size, standard land value, property type, age of the building, residential / usable area. Also requested is the location of the plot, year of construction and number of garage and parking spaces. Today, the calculation requires some 20 factors.
Anyone who wants to do it themselves – by the start of acceptance of the real estate tax declaration on July 1, 2022 at the latest – the data for all the federal states should be available on the Internet, for example www.grundsteuer.sachsen.de.
The calculation
The antiquated unit values have now been abolished in favor of a new computation basis. The real estate tax will still be computed in three steps: value of the real property x assessment factor x multiplier rate.
1st step: calculation of the property rate – the key factors are the value of the land (standard land value) and the size of the statistically computed net rent without utilities, which inter alia depends on the community’s rent level category. Additional factors are the plot size, type of plot and the age of the building. The standard land values can be found in the standard land value information systems operated by the individual states. Communities have been assigned to in rent level categories by the Federal Ministry of Finance (Rent Level Categories Ordinance of 18 August 2021, Federal Tax Law Gazette. I p. 1871).
2nd step: adjustment for the value increases, which have arisen in comparison between the current and the values no longer updated since 1935 and 1964. This will be done by a major reduction in the assessment factor, to about 1/10 of the old value. In addition, social housing construction and also municipal and cooperative housing will qualify for an addition mark-down in assessment factor of 25 percent – which will help to reduce taxes. Since the tax is paid by tenants in rented housing, this is a disadvantage for those in owner-occupied housing.
3rd step: changes to multiplier rate by the towns/ communities: should individual communities see a change in real estate tax revenue because of the new valuation, they can adjust their multiplier rates and so maintain their usual real estate tax revenue. Communities have announced that they will be doing so – apparently also to rule out widespread increases, which is not what the reform is all about.
Submission and further information
The real estate tax declaration must be submitted to the tax office electronically, for example using the well-known “Mein ELSTER” portal. The electronic forms will be available there from July 1, 2022.
- For smaller real properties (undeveloped plots, detached and semi-detached houses, condominium apartments) in states applying the federal model for real estate tax, a simplified submission option for the tax return will be available from July 2022 undergrundsteuererklaerung-fuer-privateigentum.de. The real estate tax reform also provides one of the few possibilities for clarifying administrative matters digitally, including a chatbot: www.steuerchatbot.de. Hardly surprising as urgently needed revenues are at stake.
- Information on implementation in the individual states: BMF-Monatsbericht November 2021and grundsteuerreform.de.
- General information: https://www.bundesfinanzministerium.de/Content/DE/FAQ/faq-the-new-grundsteuer.html
What happens next? The property tax assessment.
The tax office will then issue two assessments based on the data you send:
- the real estate value assessment as of January 1, 2022
- and the real estate tax assessment as of January 1, 2025
The real estate tax assessment will then be used by the town/community to set the real estate tax. Only that property tax assessment will lead to a payment obligation from January 2025.