Real estate taxes: What you should know
What taxes are incurred as a buyer, owner or seller of a property? To be able to plan your finances better, you should get an overview early on. Find out what property taxes there are, how they are calculated and why buyers in Bavaria pay comparatively little tax.
Note: This article cannot replace the consultation of a lawyer or tax advisor. We will be happy to refer you to an appropriate expert from our network.
What taxes you have to pay when buying real estate
Real estate transfer tax is levied on the purchase of a property in Germany. This is a one-off real estate tax. By law, the tax burden is shared by the seller and the buyer, but it is usually transferred to the buyer in the purchase contract.
After you have paid the real estate transfer tax, your notary will request the so-called clearance certificate from the tax office. This documents that you have no tax arrears and is a prerequisite for the transfer of ownership in the land register.
The amount of property tax by state
The real estate transfer tax depends on the purchase price. It makes an important difference in which federal state you purchase your property. Until 31 August 2006, a uniform tax rate of 3.5% applied throughout Germany. Since September 1, 2006, the states have been allowed to set the rate themselves.
Buyers in Bavaria and Saxony are clearly at an advantage: The land transfer tax was not increased here, you continue to pay the original 3.5%. In other federal states, the tax burden is significantly higher: In Lower Saxony, for example, 5%, in Berlin 6% and in Schleswig-Holstein or Thuringia even 6.5%.
The following table gives an overview of the tax rates by federal state. In the third column you can see a calculation example for an assumed purchase price of 2 million euros.
You can see: Between the inexpensive Bavaria (€70,000) and the expensive Brandenburg (€130,000), the difference in the calculation example is an impressive €60,000.
- Baden-Wuerttemberg 5,0 % = 100.000 €
- Bavaria 3,5 % = 70.000 €
- Berlin 6,0 % = 120.000 €
- Brandenburg 6,5 % = 130.000 €
- Bremen 5,0 % = 100.000 €
- Hamburg 4,5 % = 90.000 €
- Hesse 6.0 % = 120,000 €
- Mecklenburg-Western Pomerania 6.0 % = 120,000 €
- Lower Saxony 5.0 % = 100,000 €
- North Rhine-Westphalia 6.5 % = 130,000 €
- Rhineland-Palatinate 5.0 % = 100,000 €
- Saarland 6.5 % = 130,000 €
- Saxony 3.5 % = 70,000 €
- Saxony-Anhalt 5.0 % = 100,000 €
- Schleswig-Holstein 6.5 % = 130,000 €
- Thuringia 6.5 % = 130,000 €
Movable inventory reduces the real estate transfer tax
Does your dream property come with a fitted kitchen or a sauna? Then you may be able to save taxes. So-called movable inventory does not fall under the real estate transfer tax.
Types of moveable inventory may include:
- Fitted kitchen
- Sauna
- Fireplace
- awning
- Carpets
- Lamps
- Garden house
In order to make use of this rule, you should list the relevant items separately in the purchase contract, stating their value. By excluding movable inventory in this way, you minimise the purchase price on which you have to pay land transfer tax.
A sample calculation
The purchase price of a house in Munich is € 2,000,000. For this, normally 70,000 € land transfer tax would be due (3.5%). However, there is a fitted kitchen for €8,000, a fireplace for €3,500 and a sauna for €3,000. This means: The assessment basis is reduced by 14,500 €.
2.000.000 € - 14.500 € = 1.985.500 €
3,5 % of 1.985.500 € correspond to 69.492,50 €, which are due for the real estate transfer tax. Compared to the original € 70,000, this is a saving of € 507.50.
However, the prices for movable inventory should be set realistically. Otherwise, you will have to reckon with inquiries from the tax office.
These real estate taxes are incurred by the owner
As the owner of a property, you must pay property tax. Property tax, not to be confused with the one-off land transfer tax, is an ongoing property tax payable to the municipality. If you are a landlord, you may pass on the property tax to the tenant as an operating cost as part of the service charge settlement.
The Federal Constitutional Court overturns the property tax
In April 2018, the Federal Constitutional Court decided that the property tax assessment in its current form is unconstitutional. As a result, the Federal Ministry of Finance had to present a new regulation of the property tax, which is to come into force from 01.01.2025. Until then, the regulation described here will apply as a transitional measure.
The amount of property tax
Basically, the property tax is low, usually less than 1000 € per year. A distinction is made between property tax A (agricultural) and property tax B (structural). The following four points are important for the calculation:
The responsible tax office designates the so-called standard value for your property. It is supposed to represent the value of your property and is stated in euros. In practice, the standard value is significantly lower than the market value of your property.
You will also receive the so-called property tax rate from the tax office. In the old federal states it is between 2.6 and 6 per mille, in the new federal states between 5 and 10 per mille. The value depends, among other things, on the type of building.
If you multiply the assessed value and the property tax assessment figure, you get the property tax assessment amount.
This real estate tax assessment amount is then multiplied by the local assessment rate of the municipality. The result is the annual property tax due.
A calculation example for the property tax
You own a condominium in Munich. According to the tax office, the assessed value of your property is €50,000. The property tax rate for a condominium in the old federal states is 3.5 per mille.
50.000 € x 0,0035 = 175 €
The property tax assessment amount of 175 € is now multiplied by the assessment rate for Munich, 535 percent.
175 € x 5,35 = 936,25 €
The property tax per year is therefore € 936.25, whereby the amount is usually due quarterly on a pro rata basis.
Do landlords have to pay income tax?
Profits from rental income are subject to income tax and must be declared on your tax return. Pay attention to the topic of debt interest: Interest on loans related to rental income can be claimed as income-related expenses.
Example 1: Modernisation costs
You take out a loan to modernise the apartment you rent out. You can include the debt interest incurred as income-related expenses in your tax return.
Example 2: Semi-detached house
You occupy one half of a loan-financed semi-detached house and rent out the other half. This means that you can claim 50 percent of the debt interest incurred against tax.
Do landlords have to pay sales tax?
If you rent to private users, you do not pay VAT on your rental income - you are exempt from VAT. In the case of a commercial rental, you have an option: you can opt for VAT. This can be advantageous because it allows you to claim an input tax deduction.
An example: A craftsman sends you an invoice for the renovation of your commercial property. The invoice shows sales tax. You can claim this amount as input tax in your next advance VAT return.
The decision to opt for sales tax lies with you, not with the commercial tenant. It must be documented in the rental agreement. You should also stipulate that the tenant may only use the premises for transactions subject to sales tax.
Selling real estate: These taxes apply
If you want to sell your house or condominium, income tax may be due under certain conditions. This is also known colloquially as speculation tax. The amount depends on the profit generated and the income tax rate of the seller.
Whether speculation tax must be paid on the sale of real estate depends on the type and length of use.
Rented properties
If less than 10 years have passed since the purchase of your rented property, speculation tax is due. The legislator assumes here that the seller only acquired the property because he was speculating on a short-term increase in value. If, on the other hand, more than 10 years have passed, no tax is due.
Self-occupied properties
If you have lived in the property yourself throughout or at least in the year of sale and the two preceding years, no tax is due either. This also applies to calendar years that have begun. For example, if you have lived in your house since December 2018 and sell it in January 2020, you will remain tax-free.
The calculation of speculation tax
In the first step, you must deduct the acquisition price from the sales price. Any depreciation during the holding period reduces the acquisition price.
From this difference, you deduct further acquisition, production and advertising costs, e.g. for notary, extension and advertisements.
You must show the profit calculated in this way as additional income in your income tax return. It leads to a higher total taxable income.
A calculation example for the speculation tax
- Sales price: € 3,200,000
- Acquisition price (reduced by depreciation for wear and tear, if applicable): € 2,400,000
- Further costs (e.g. notary, extension and advertisements): € 300,000
- Taxable profit: 500.000 €
- Income tax rate of the seller (example): 44 %.
Tax due: 220,000 €
Do you need assistance with buying or selling?
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