Passing on real estate can get really expensive in the new year. This is ensured by the annual tax law, which could be passed this year. Hidden between the lines are hefty tax increases when it comes to inheriting or giving away real estate. A look at the details.
The so-called annual tax law is still waiting to be passed. After the first session of the Bundestag on October 14, 2022, the Finance Committee held a public hearing at the beginning of November. When exactly the annual tax law is to be finally discussed is still in the stars. This was confirmed by the press office of the German Bundestag when asked by FOCUS online.
What emerges from the draft discussed there makes real estate owners in particular prick up their ears. Inheriting or giving away your own four walls can therefore lead to significantly higher taxes in the coming year. The crux here is in the detail. Because the new regulations stipulate that sometimes higher values are set for real estate.
On the one hand, this means that inheritance and gift tax will be higher, and on the other hand, this could soon be the case more often – as soon as the allowances are exceeded. This is where the degree of kinship comes into play. The inheritance tax and gift allowances are as follows:
What can only be gleaned between the lines of the draft and what will be important in the future for the transfer of residential property can be seen in particular with a view to the valuation rules for real estate. In detail, the capitalized earnings method and the material value method are affected.
If the previous draft is passed in this way, the new tax real estate valuation will apply as of January 1, 2023. The changes will come into force on the day the law is passed, but the draft stipulates that those new regulations will only be applied for “valuation dates after December 31, 2022 will”.
Anyone who inherits a property this year or receives it as a gift must keep an eye on the date of death as the key date. This is important because the old regulations still apply if this is still in 2022.
Many may now be in a rush to transfer property ahead of changes in the annual tax law. In the case of donations for the valuation of real estate, it is important to conclude the notary contract. This applies if only the transfer with entry in the land register is pending.
Of the three tax assessment methods, the draft law affects the earnings value method and the material value method. The comparative value method remains unaffected.
With the real value method, the value of the property is calculated from the building fabric and the land value. Manufacturing costs play a key role here. As a rule, the material value method is only used in the case of special sales conditions. For example, if the comparative value method cannot be used because there are hardly any comparative values for similar properties. This usually applies to real estate in rural areas or villas and castles.
In the capitalized earnings method, the value of the property is calculated based on its income. This can be rent or lease. The value of the land is also important here. The following formula applies:
Land value Building income value of the structural facilities = income value (market value)
In this procedure, the value of the property and the value of the building structures are considered separately. Because: The floor does not lose value. However, the property itself has a certain remaining useful life. This process is often used for classic investment properties. Income from rents plays a key role here. It is also sometimes applied to commercial properties or mixed-use buildings.
With the new annual tax law, for example, the calculation in the discounted earnings method is becoming more complex or more complicated. So far, management costs could be deducted quite easily. The new regulations mean that the deductions are lower. This increases the tax value of the property. In addition, the property interest rate, i.e. the long-term assumed value of the property, is reduced, which also results in higher property values for tax purposes.
In addition, local market conditions, caused by regional factors, are to be given more attention in future in the asset value process. At this point, nothing more emerges from the draft. However, it is to be expected that here, too, the property value for tax purposes will be influenced.