How to Pay Property Taxes in Germany
Taxes are an unavoidable fact of life in Germany, and real estate is of course no exception. German property taxes can be difficult to understand, and they are separate from the fees you must pay when purchasing a property. In this guide, we will break down everything you need to know about paying property taxes in Germany.
Property Transfer Tax
When you purchase real estate in Germany, you must pay a property transfer tax, called Grunderwerbsteuer in German. Within a month of your purchase being finalised, you will receive a bill (called the Grunderwerbsteuerbescheid) from the federal state (Bundesland) in which the property is located. The tax rate is calculated as a percentage of the sale price and varies from state to state. In Berlin, the property transfer tax rate is set at 6%. In other states the tax rate varies between 2.5% and 6.5% of the property value. The real estate purchase will not be registered by the notary until this tax is paid.
The property transfer tax rate is 6% in Berlin.
Capital Gains Tax
In many cases, the seller must also pay taxes on the property sold. German real estate markets such as Berlin are expanding quickly, and as the prices are growing substantially, properties are likely to increase in value as the years go by. If sold at a higher price than it was bought for, the yield is known as capital gains, and is considered taxable income in Germany. For example, if you buy an apartment in 2010 for €150,000, and you sell the apartment in 2016 for €220,000, the capital gains earned is €70,000 (note that these prices exclude acquisition costs). Income tax for individuals in Germany is taxed at progressive rates. Earnings between €9,408- €57,050 are taxed from 14 to 26%, earnings over €57,051 are taxed at 42%, and if you make more than €270,500, you will be taxed 45%. Nonresident foreigners are only taxed on German-sourced income in Germany.
Any returns gained from property sold is considered taxable income in Germany.
Property owners may deduct certain expenses from the gross yield, for example expenditures related to maintenance. However, maintenance costs may not be deducted in the year they were completed if they exceed 15% of the purchase price of the home. Instead, these costs will be added to the depreciable value of the property. Depreciation on German property is 2% for existing houses, and 3% for newly built homes for the first eight years. The good news is that there are exceptions for the capital gains tax, which can be very expensive on properties that increase greatly in value. For one, if you own your home and it has been your main residence for at least two complete years (January to December), you will not have to pay the capital gains tax when selling. Furthermore, after 10 years of ownership, any profit made from the sale of property will not incur a capital gains tax.
Property owned for more than ten years is excluded from capital gains tax.
If you do sell your property within ten years of purchasing it, and the former exemption does not apply, then the capital gains earned from the sale will be taxed at the standard progressive income tax rates plus solidarity surcharges. The profit is considered to be part of your income for that fiscal year in which the buyer pays the purchase price, and you will be taxed accordingly. However, acquisition costs and some renovation costs can be deducted from the selling price when you calculate your taxable capital gains.
Local property tax
Property taxes, called Grundsteuer in German, are paid locally and determined by the state in which the property is located. The rate is based on the assessed value of the property (the location and size are usually determining factors) and every type of real estate, including undeveloped land, is subjected to the tax. The local property tax rates in Germany are usually quite low and vary between 0,26% and 1%. The rate is based on the fiscal value of the property (Einheitswert in German), which is typically below the property’s market value. This number is then multiplied by a location coefficient. In states from the former West Germany, this is between 2.6-6%, while regions in the former GDR have a coefficient of 5-10%. The resulting number is then subject to another coefficient, depending on the state.
Most apartments in Berlin will only incurr between 80 and 150 euros in yearly property taxes.
The result from all this mind-bending number crunching is thankfully low. A standard apartment in Berlin can expect to pay between 80 and 150 euros per year. This tax is calculated annually but usually paid every trimester to your local tax office (Finanzamt), and is mandatory for all property owners in Germany.
Rental income for landlords is taxed the same way as normal income tax in Germany, with progressive rates. Any properties located in Germany which incur revenue from renting will be subject to income tax and must be declared every year with a fiscal report (called Steuererklärung für beschränkt Steuerpflichtige). However, you can make certain deductions from the rental income. For example, interest rates from the mortgage, maintenance and repair fees, property tax, and fees from the real estate broker or accountants. The tax also depends on the rental itself—long or short term, whether it comes furnished, if it is owned privately or by a company, and so on. To learn more about buying a rented property and becoming a landlord, click here.
All this may sound overwhelming, but keep in mind that buying property in Germany is still an affordable and practical option for many and can make for a sound long-term investment. Purchasing real estate especially makes sense if you plan on living in your home for many years. In order to assess your individual fiscal situation, please talk to a tax advisor in Germany (called a Steuerberater).
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