German Property Tax Reform (Grundsteuer): Guide for Expats 2026

Why Was the Property Tax Reformed?

Germany's Federal Constitutional Court (Bundesverfassungsgericht) declared the old property tax system unconstitutional in April 2018. The problem: property values used for the calculation dated back to 1964 in West Germany and 1935 in East Germany. These hopelessly outdated values created massive inequalities: similar properties in the same area could face wildly different tax burdens depending on when and how they were originally assessed. The legislature was required to create a new system by the end of 2019, which took effect on January 1, 2025.

The Federal Model (Bundesmodell)

The federal model calculates a property tax value (Grundsteuerwert) based on the actual land value and, for developed properties, estimated rental income. The formula is:

Property Tax = Property Tax Value x Tax Assessment Rate (Steuermesszahl) x Municipal Rate (Hebesatz)

The tax assessment rate was deliberately set low (0.31 per mille for residential properties, 0.34 per mille for others) to compensate for the higher property tax values. Municipalities control the actual tax burden through their assessment rate (Hebesatz), which varies significantly, from around 300% in some rural areas to over 900% in certain cities.

Alternative State Models

A constitutional amendment allowed individual federal states to develop their own property tax models. Six states chose to deviate from the federal model:

The remaining ten states (including NRW, Berlin, Brandenburg, and others) apply the federal model.

How the Federal Model Calculates Property Tax Value

For residential properties (single-family homes, apartments, rental buildings), the federal model uses a simplified income approach:

1. Determine the standard land value (Bodenrichtwert): Published by the local expert committee and available through the BORIS portal. Example: 250 euros per square meter.
2. Calculate land value: Property area times standard land value. For 500 sqm at 250 euros: 125,000 euros.
3. Determine building income value: Monthly net cold rent is estimated using standardized tables based on the municipality's rent level (1-7), building year, and living area. Example: Level 4, built 1995, 120 sqm yields approximately 7.50 euros/sqm, so 900 euros/month.
4. Annual gross income: 900 times 12 equals 10,800 euros.
5. Subtract management costs: Approximately 18-23% depending on building type. At 20%: 8,640 euros net income.
6. Apply multiplier: Based on remaining useful life and capitalization rate. For a 1995 building: factor of approximately 27.5, yielding 237,600 euros.
7. Property tax value: 237,600 plus 125,000 (land) equals 362,600 euros.
8. Apply assessment rate: 362,600 times 0.31 per mille equals 112.41 euros tax assessment amount.
9. Apply municipal rate: 112.41 times 400% equals approximately 450 euros annual property tax.

Property Tax Types: A, B, and C

Germany distinguishes three types of property tax:

• Property Tax A (agrarisch): For agricultural and forestry businesses.
• Property Tax B (baulich): For developed and developable land; this applies to most property owners.
• Property Tax C: Introduced with the 2025 reform for undeveloped but buildable land. Municipalities can set a higher assessment rate to discourage land speculation and incentivize construction.

Impact on Tenants

Although property tax is owed by the property owner, it can be fully passed on to tenants through the service charge statement (Nebenkostenabrechnung). This is authorized by Section 2(1) of the Operating Costs Ordinance (BetrKV) and is included as a standard clause in virtually all German rental contracts.

If the property tax increases due to the reform (for example, because the property is in a desirable location), this increase will appear in your next service charge statement. In multi-unit buildings, the property tax is typically distributed among tenants based on living area. As a tenant, you cannot appeal the property tax amount; only the property owner can do so at the tax office.

How to Appeal Your Property Tax Assessment

If you believe your property tax assessment contains errors, you can file an objection (Einspruch) at your local tax office within one month of receiving the notice. Common errors include:

• Incorrect property area or living area
• Wrong building year or building type
• Incorrect rent level classification for your municipality
• Unrecognized encumbrances such as usufruct rights

The objection must be filed against the property tax value notice (Grundsteuerwertbescheid) from the tax office, not against the property tax notice from the municipality. You cannot individually challenge the municipal assessment rate.

Key Takeaways for Expats

• The property tax reform took effect January 1, 2025, replacing values from 1964/1935 with current assessments.
• Six states use their own models; the remaining ten use the federal model.
• Annual property tax for a typical single-family home ranges from approximately 300 to 600 euros depending on the state and location.
• Property tax can be passed on to tenants through the service charge; check your Nebenkostenabrechnung.
• The new Property Tax C targets undeveloped land to combat speculation in housing shortage areas.
• If you own property, review your assessment notice carefully and appeal within one month if you find errors.