Changes through the Annual Tax Act 2024: These regulations affect your property starting in 2025

On November 22, 2024, the Federal Council approved the 2024 Annual Tax Act. For property owners, the new law brings important changes. From property tax and photovoltaic systems to inheritance regulations, the new provisions affect various areas of the real estate industry. Some regulations take effect upon the promulgation of the law, while others will not come into force until 2025. We have summarized the most important changes for you and explain what you need to know now as a property owner.

Fair property tax valuation: More co-determination rights for owners

Probably the most important change concerns the real estate tax assessment. Many owners know the problem: the real estate tax value determined by the tax office is significantly higher than the actual market value of their property. Starting in 2024, you can defend yourself better against this. If you can prove that your property is worth less than assumed by the tax office, this lower value must be taken into account (see pursuant to Section 220, Paragraph 2 of the Valuation Act [BewG]). This regulation is intended to contribute to greater tax fairness.

New tax benefits for photovoltaic systems

The Annual Tax Act 2024 brings significant improvements for owners of photovoltaic systems. Effective January 1, 2025, the tax-privileged capacity of photovoltaic systems will be significantly expanded. The permitted gross capacity for tax exemption is doubling from the previous 15 to 30 kilowatts peak in the future – specifically per residential or commercial unit.

Important details regarding the new regulation on photovoltaic systems

The tax exemption also applies to buildings that are used exclusively for commercial purposes. Here, you can also benefit from the increased output of 30 kilowatts peak per commercial unit. Please note: This is an exemption limit and not a tax-free allowance. This means that if you exceed the limit, the tax exemption is forfeited entirely.

Temporal application:

The new regulation applies to all photovoltaic systems that you after December 31, 2024:

• purchase new
• initialize for the first time
• or expand existing systems

So if you are planning an investment in a solar system, it is worth reconsidering the timing carefully. With the right scheduling, you can make the most of the expanded tax benefits.

Tax relief for real estate inheritance and gifts

The Annual Tax Act 2024 brings significant improvements for people who inherit or are gifted a property. The new deferral regulation makes it possible to pay the resulting tax over a period of up to ten years if it could only be raised by selling the property.

Broad scope of application of the new regulation on the inheritance and gifting of real estate

The deferral option has been significantly expanded and now applies to all types of residential real estate. This includes:

• Owner-occupied homes
• Rented apartments
• Apartments in multi-family houses
• Real estate that is rented out after inheritance or donation

Practical significance for heirs

The new regulation prevents heirs or donees from being forced to sell the property on short notice just to be able to pay the inheritance or gift tax. This is particularly important for high-value properties or when no other liquid funds are available.

Special feature of foreign real estate

Special conditions apply to real estate in third countries. A deferral is only possible if there is an exchange of tax information with the state in question and the tax claims can also be enforced there.

New regulations on building depreciation

Of particular interest to landlords and investors are the changes to building depreciation. Starting from the 2023 assessment period, there is more flexibility here: after the end of special depreciation, such as that possible for new residential construction, you can now calculate further depreciation based on the residual value and a special percentage.

What does that mean for you concretely?

For example, if you have claimed the special depreciation allowance for the construction of new rental residential property, you can subsequently continue with the declining-balance depreciation. However, this is tied to an important condition – you must have already chosen the declining-balance depreciation method before the end of the special depreciation allowance. This new regulation is particularly advantageous because it applies retroactively from the 2023 tax year. It enables you to optimize your tax planning and can lead to significant tax benefits. It is best to consult your tax advisor to show you how to make the most of this new regulation for your specific real estate investments.

Digitization in the construction sector: New regulations on tax deductions

Starting January 1, 2026, the tax office is modernizing the administration of construction tax deductions. Pursuant to Section 48c of the Income Tax Act (EStG), applications for the refund of the construction tax deduction amount must then be submitted electronically.

What does this mean for you as the building owner or client?

When you commission construction services and wish to submit a refund claim, this will in future be done exclusively via the tax office's electronic system. This is intended to accelerate processing and reduce administrative effort.

Important exception

The legislature has included an important hardship clause: If submitting the application electronically would represent an „unreasonable hardship“ for you, you can continue to use the traditional paper method. This may be the case, for example, if:

• You do not have internet access.
• The technical equipment is missing.
• you are unable to submit electronic applications for health reasons.

The new regulation is part of the ongoing digitalization of the financial administration, but retains the necessary flexibility for special situations through the hardship clause.

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Changes to trade tax as of 2025: New regulation on real estate deduction

The Annual Tax Act 2024 introduces an important new provision regarding the trade tax treatment of real estate. The regulation concerns the so-called „simple real estate deduction,“ which is anchored in the Trade Tax Act.

What specifically is changing with the trade tax?

Pursuant to Section 9 No. 1 sentence 1 of the Trade Tax Act (GewStG), the reduction for real estate is being restructured. As of the 2025 assessment period, the reduction will be based on the real estate tax actually recorded as a business expense.

Practical significance for businesses

• The reduction is directly linked to the actually paid property tax.
• The actual survey period is decisive.
• The new regulation creates more transparency in tax treatment.

This change simplifies the calculation and establishes a more direct link between the paid property tax and the potential reduction. Companies should adjust their accounting accordingly to benefit from the new regulation starting in 2025.

New regulations on real estate transfer tax: More precise definition of company assets

The Annual Tax Act 2024 introduces important clarifications to the Real Estate Transfer Tax Act (GrEStG). The new regulations aim to prevent tax avoidance strategies.

Clear definition of company assets

The law now clearly defines in § 1 para. 4a GrEStG when a property belongs to a company's assets:

• The company that most recently carried out a transaction subject to real estate transfer tax is decisive.
• The assignment remains in effect as long as no reversal takes place.

Protection against abuse

The new regulation prevents tax avoidance schemes:

• Reversed acquisitions are not taken into account.
• Repurchased properties are subject to special review.
• The rule applies to all relevant corporate transactions.

Temporal application

The new regulations apply:

• For all new acquisitions after the promulgation of the law.
• Retroactively for certain past transactions.
• For all transfers of real estate under corporate law.

This clarification creates legal certainty and eliminates previous room for interpretation regarding the real estate transfer tax.

Outlook: Better opportunities through new non-profit housing regulations

An exciting future topic awaits in 2025: The new affordable housing non-profit status is being added to the catalog of tax-exempt purposes. This opens up interesting perspectives, especially for socially committed real estate owners.

Practical recommendations for your tax planning

To make the most of all the new features, you should keep a few important points in mind:

• Gather evidence early on regarding the actual value of your property.
• Carefully document all modernization measures.
• Consult a tax advisor for major decisions.
• Plan long-term, especially when investing in solar energy systems.

The Annual Tax Act 2024 brings various changes for property owners. A careful review of the new regulations and proactive planning can help optimize the tax framework for your real estate. If you have any questions about the individual measures, consult a tax advisor.