Real estate transfer tax 2024: Is the tax on buying real estate decreasing?

For many years, real estate buyers in Germany have had to dig deep into their pockets. One reason for this is the real estate transfer tax, which has been increased further and further in most federal states in Germany. But now there is a little hope for everyone who dreams of owning their own home: In some regions, the tax could soon fall. What does that mean for you as a buyer?

What is the real estate transfer tax anyway?

No sooner have property buyers signed the purchase agreement than the tax office comes knocking. The reason: real estate transfer tax. Anyone who acquires a property must pay this levy to the tax authorities, often amounting to several thousand dollars. Anyone buying a property in Germany must budget for incidental costs such as real estate transfer tax in addition to the actual purchase price. This tax applies to the acquired land and the buildings standing on it. Depending on the federal state, the tax rate currently ranges between 3,5 % and 6,5 % of the purchase price. 

Why could the amount of the real estate transfer tax soon change when buying property?

Since the federalism reform in 2006, the federal states have been allowed to set the tax rate themselves. Most of them have used this opportunity since then for regular increases. But now there are the first signs of a trend reversal and a reduction in the unpopular tax:

• In Thuringia, the real estate transfer tax is set to decrease from 6.5 % to 5 % starting in January 2024.
• Tax cuts are also being discussed in Schleswig-Holstein and North Rhine-Westphalia.
• There could even be tax allowances for first-time real estate purchases.

It is clear that if buyers have to pay less tax, buying real estate becomes more attractive and easier to finance. Experts expect thousands of additional buyers, especially among young families.

How to save on real estate transfer tax? The best tips for property buyers

There are a few clever ways to reduce the tax burden when purchasing real estate or even avoid it altogether. Here, we reveal the most effective tricks.

Specify furnishings or movable objects: bill kitchen and sauna separately

A simple yet effective tip: Have expensive furnishings such as a fitted kitchen or sauna listed separately in the purchase contract. After all, only permanently installed elements are included in the real estate transfer tax. You do not have to pay tax on separately designated inventory. This allows you to reduce the tax base by several thousand euros.

First the plot, then the house

There is also potential for savings with new builds: initially buy only the plot of land and start building the house only later. In that case, the real estate transfer tax applies only to the price of the land. The construction costs are left out – which quickly makes a big difference.

Transferring real estate within the family

The best news for buyers with relatives: Anyone who buys a property from close family members does not pay any real estate transfer tax at all. Sales are tax-free between:

• Spouses
• parents and children (including adopted children)
• Grandparents and grandchildren
• Parents-in-law and children-in-law
• to ex-partners in the course of the divorce

Unfortunately, the tax exemption does not apply only to siblings. Therefore, anyone who has the opportunity to take over a house, a plot of land, or an apartment within the family should definitely seize this chance.

Tax tricks for professionals – Share deals

Large real estate investors have yet another ace up their sleeve: the share deal. Instead of buying individual properties, they acquire shares in housing companies. If the acquired stake is below 90 %, the real estate transfer tax is completely eliminated. For private individuals, however, this option is usually too complex and time-consuming.

Bottom line: While the real estate transfer tax cannot always be avoided, with the right strategy even average consumers can significantly reduce their tax burden when purchasing a property. Therefore, it pays to thoroughly examine all options and plan cleverly even before buying a home. That way, more money is left over in the end to make the dream of owning a home come true...

Conclusion: Is buying real estate worth it in 2024?

Whether and where the real estate transfer tax will actually decrease remains to be seen. However, the signs are promising that buyers in some federal states will be granted relief in the future. Combined with currently rather stagnating property prices, 2024 could therefore be a good year to turn the dream of owning a home into reality. One thing is clear, however: even a reduced real estate transfer tax does not make buying property a bargain. Buyers should keep a close eye on all costs and carefully calculate what they can afford. Then hopefully nothing will stand in the way of moving into your new home!

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FAQ: Frequently Asked Questions Regarding Real Estate Transfer Tax

Can you deduct property purchase tax from your taxes?

When you acquire a property that is to be used exclusively for private purposes, unfortunately, you have no way of claiming the acquisition costs or incidental costs such as the real estate transfer tax for tax purposes. In this case, the tax office recognizes neither the purchase price nor any other expenses associated with the acquisition.

However, the situation is quite different if you want to rent out the property or use it for business purposes. In that case, you can deduct the real estate transfer tax, along with the purchase price, notary fees, and land registry fees, as acquisition costs over several years. This allows you to significantly reduce your tax burden in the long run.

Even if you partially live in the acquired property yourself and partially rent it out, a proportional deduction of the real estate transfer tax is possible. The same applies if you use a room as a home office. For employees, however, there are certain restrictions regarding this – for example, no office may be available at the regular workplace. Self-employed individuals, on the other hand, can deduct the home office without additional requirements.

A clever tip to save on real estate transfer tax when buying property: purchase certain furnishings such as a fitted kitchen, furniture, awnings, or a sauna separately. Since these are not permanently attached to the building, no real estate transfer tax applies to them. The only important thing is that you conclude a separate purchase contract for these items and do not list them in the main contract. With the right strategy, you can therefore certainly save a portion of the real estate transfer tax or deduct it from your taxes later. It is best to consult an expert early on to make the most of all opportunities when buying a property.

Which tax office do I need to contact regarding the real estate transfer tax?

The answer depends on the federal state and the municipality where the acquired property is located. In some states, there are special real estate transfer tax offices that handle this matter. They can usually be found in larger cities and bundle responsibility for the entire federal state or certain regions. In other cases, the local tax office in whose district the property is located is your point of contact.

But don't worry: as a rule, you don't have to take any action yourself to determine the responsible tax office. That task is handled by the notary who notarizes your purchase agreement. They automatically report the acquisition of the property to the competent authority and forward all necessary documents. You can therefore sit back and relax and wait for the tax office to contact you. As soon as the real estate transfer tax has been assessed, you will receive a corresponding notice with all important information, such as the tax amount and payment terms. If you are unsure which tax office is responsible in your case, you can simply ask the notary. They have the necessary information and can tell you who to contact if you have any questions.

Conclusion: Responsibility for the real estate transfer tax varies depending on the federal state and municipality. In many cases, however, the notary public handling the transaction takes care of notifying the appropriate tax office, meaning you do not have to take action yourself.

In which federal state is the real estate transfer tax lowest?

Since 2006, the federal states have had the option to set the tax rate themselves, and many have made use of this. However, there is one outlier downwards: Bavaria. The Free State is the only federal state that has stuck to a real estate transfer tax rate of 3.5 percent since the federalism reform. This puts Bavaria at the lowest level nationwide in Germany.

For comparison: in most other countries, property buyers have to dig much deeper into their pockets. The frontrunner is currently Thuringia with a tax burden of 6.5 percent. On a property worth 400,000 EUR, that still makes a difference of 12,000 EUR.

So, anyone who has the opportunity to manage their real estate purchase regionally should take a look at the property transfer tax. Currently, the most savings can be made in Bavaria. However, other factors such as local real estate prices and the cost of living must also be taken into account.

TipBesides Bavaria, other states such as Saxony, Hamburg, and Berlin also have comparatively low tax rates. It is therefore worthwhile to look beyond the horizon when buying real estate and compare different locations.

Source: Handelsblatt