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Certified Tax Advisor, Lawyer, Director, National Office Tax & Legal
Consultant, National Office Tax & Legal
The German Federal Constitutional Court (BVerfG) is currently considering a constitutional complaint (case no. 1 BvR 472/26) against the federal valuation regulations for the income approach, which will be used in eleven states for the valuation of residential property as the basis for calculating property tax from January 1, 2022, in accordance with the so-called federal model. Previously, the German Federal Fiscal Court (BFH) had ruled that this so-called federal model was in conformity with the constitution (decision of November 12, 2025, case no. II R 3/25). In its press release dated December 10, 2025, it provided information on its decisions reached at the oral proceedings on November 12, 2025 and subsequently published the full decisions (in addition to case no. II R 3/25, also cases no. II R 25/24, II R 31/24) retrospectively on January 22, 2026.
The valuation rules created by the federal government in Sections 218 et seq. BewG for calculating the new property tax (known as the federal model) in the version of the GrStRefG are based on the decision of the Federal Constitutional Court (BVerfG) of April 10, 2018 (cases no. 1 BvL 11/14, 1 BvL 12/14, 1 BvL 1/15, 1 BvR 639/11, 1 BvR 889/12), according to which the previous uniform valuation was unconstitutional and could only continue to apply on a transitional basis until December 31, 2024.
On January 1, 2022, all real estate in Germany was therefore revalued according to its value and use on that specific date (main assessment). In the so-called federal model, the property tax value will replace the previous unit value as the basis for assessment from January 1, 2025.
In its decisions of May 27, 2024 (cases no. II B 78/23 (AdV) and II B 79/23 (AdV)), the BFH decided that, in individual cases, a fair market value that is at least 40% below the assessed property tax value can be proven and used as the basis for a property tax assessment in the so-called federal model. The legislature already adopted this with the new Section 220 (2) BewG, which was introduced by the Annual Tax Act 2024 of December 2, 2024.
Nine federal states (Berlin, Brandenburg, Bremen, Mecklenburg-Western Pomerania, North Rhine-Westphalia, Rhineland-Palatinate, Saxony-Anhalt, Schleswig-Holstein, Thuringia) currently apply the so-called federal model without modification, and two (Saarland, Saxony) apply it with different tax assessment rates; Five federal states (Baden-Württemberg, Bavaria, Hamburg, Hesse, Lower Saxony) make use of an opening clause in their own state regulations, which deviate from federal law, with regard to property tax.
In all three cases, the income approach (Sections 251 to 257 of the German Valuation Act (BewG)), which applies to residential properties (single-family and two-family houses, rental properties, and condominiums), had to be reviewed in particular for its compatibility with the general principle of equality under Article 3(1) of the German Basic Law (GG). The gross income of the property is determined according to standardized, nationally uniform net cold rents depending on the type of building, living space, and year of construction of the property; in addition, surcharges and discounts are applied according to (six) rent levels in order to compensate for missing differences between rural areas and cities. The classification of each municipality into a specific rent level leads to a reduction in rent prices of up to 22.5% (level 1) or an increase of up to 32.5% (level 6). However, there are no regulations for taking into account possible rent differences in the various districts within a municipality. As a result, higher-priced properties could be valued lower than their actual value, and lower-priced properties could be valued too high.
Therefore, in all three cases, it had to be clarified whether it is constitutional to use a broadly standardized (mass) valuation procedure for property tax purposes that may not always result in a tax burden based on economic capacity. The BFH also had to decide whether the use of flat-rate net cold rents and the standard land values determined by expert committees were appropriate for the valuation of an individual property and did not violate the constitutional requirement for a realistic and fair valuation. It also needed to be clarified whether the taxpayer's option to prove a lower fair market value in individual cases – at least 40% below the determined property value – when valuing real estate using the income approach (Section 220 (2) BewG) is constitutionally objectionable.
As a result, the BFH not only classified the federal valuation regulations of the income approach for property tax as materially constitutional from January 1, 2022 (Guiding principle 2) but also confirmed the formal constitutionality of the Property Tax Reform Act (GrStRefG) of November 26, 2019 (Guiding principle 1). At the time of its adoption, the Basic Law already provided for the unrestricted jurisdiction of the federal government - in particular its concurrent legislative competence under Article 105(2) sentence 1 GG, which was inserted by the Act Amending the Basic Law of November 15, 2019 with effect from November 21, 2019, and thus even before the GrStRefG came into force.
The BFH bases its decision on the established case law of the BVerfG, according to which Article 3(1) GG requires that the basis of assessment for a tax be designed in an equitable manner for all taxpayers, but allows the legislature to adopt generalizing, typifying, and flat-rate regulations in this regard. A fundamental orientation toward the normal case is sufficient, as is the preference of practical considerations over aspects of investigative accuracy.
The BFH comments separately on the following three points of contention:
a) Reason for the burden
The federal valuation regulations governing the income approach are fundamentally suitable for reflecting the basis for the property tax burden in a manner that is both realistic and appropriate. According to the legislature, the basis for the (new) property tax is the ownership of real estate. Its potential use to generate income gives the respective taxpayer a corresponding objective ability to pay (Guiding principle 3).
b) Standardized standard land values
The requirements of the BFH for a realistic and relationally appropriate valuation are met by the legally standardized standard land values used to determine land value (Sections 257 (1) sentence 1, 247 (1) sentence 1, (2) BewG). In principle, a deviation of 30% upwards or downwards is permitted between the value of the property to be assessed and the standard land value property used as the average value for the relevant standard land value zone. The standard land values derived from market data represent average location values for land in a standard land value zone as a spatially contiguous area and cannot accurately reflect the value of each individual property located there. Value distortions that inevitably occur in a standardized assessment are limited by the requirement that the characteristics of the standard land value property must correspond to the prevailing value-influencing land- and soil-related characteristics of the property being valued. The fact that, in individual cases, there may be justified and legally reviewable objections to the manner in which the standard land value is determined by the expert committees does not argue against the legal admissibility of standardizing the determination of standard land values. Rather, as a court of fact, the FG can, in principle, base its decision on the standard land values determined by the expert committees without further clarification of the facts; these are only subject to (limited) judicial review in the event of substantiated allegations of violations in their determination or in the event of concrete indications of such violations in the respective individual case (Guiding principles 6 and 7).
c) Flat-rate net cold rents
The flat-rate net cold rents used to calculate the value of residential property using the income approach do not lead to unconstitutional unequal treatment (Guiding principle 4). Although the net cold rents per square meter of living space differ according to the type of building, the year of construction, the living space, and the location of the apartment within a federal state, any further local differentiation is based solely on flat-rate surcharges and discounts based on the known rent levels for an entire municipality/city. However, the lack of differentiation according to municipality/city districts and the resulting possible unequal treatment of properties in good locations with a rate below the rent actually paid or achievable compared to properties in poorer locations with rents often above the rent actually paid or achievable are constitutionally justified by the legitimate goal of a largely automated property tax enforcement system.
The current decisions of the BFH are significant for the eleven federal states that apply the so-called federal model. For these states, these decisions have provided a degree of administrative and planning certainty, but have not put an end to the possibility of differing tax burdens in cases that are identical or similar in nature.
However, similar cases should be kept open with reference to the constitutional complaint currently pending before the BVerfG (case no. 1 BvR 472/26) against the so-called federal model, and to further appeal proceedings pending before the BFH (cases no. II R 11/25, II R 22/25, II R 26/25, II R 34/25, II B 19/25 (AdV)).
The current BFH decisions have no consequences for Baden-Württemberg, Bavaria, Hamburg, Hesse, and Lower Saxony, which have their own property tax models. The BFH plans to hold oral proceedings on the “Baden-Württemberg state model” in April 2026.
The owners of a rented apartment in North Rhine-Westphalia objected to the determination of the property tax value as of January 1, 2022, in accordance with the new property tax assessment law. In their opinion, the tax office had set the standard land value too high. This had resulted in a significant increase in the property tax assessment amount. In addition, a much lower standard land value had been applied to another condominium owned by them, which was located not far away in what the owners considered to be a better location.
The FG rejected the claim that this violated the constitutional principle of equality. The new valuation rules for determining property tax values in the so-called federal model did not raise any serious constitutional concerns. The aim of the valuation was to arrive at an “objective, realistic property tax value” within a corridor of common values (market values). In its decisions on the unconstitutionality of the old uniform valuation, the BVerfG had emphasized the legislature's permissible scope for standardization and flat-rate assessment. The previous valuation regulations were rejected not because of an overly typified valuation, but because of the decades-long failure to make new main assessments. Now, however, in view of the approximately 36 million required revaluations of properties, a procedure that is as simple and automation-friendly as possible is needed, resulting in a certain degree of. This was confirmed by the BFH.
The owner of a rented apartment located in Berlin in the vicinity of a railway line objected to the determination of the property tax value as of January 1, 2022, in accordance with the new property tax assessment law. In particular, he criticized the tax office for incorrectly determining the standard land values on the basis of a uniform standard land value zone and for using a standardized rent that was far above the actual market rent and, moreover, could not be achieved through rent increases.
The FG saw things differently. The valuation complied with the simple legal requirements (of the BewG), which were compatible with higher-ranking law – the Basic Law. Like the tax office, it saw no legal violations on the part of the expert committee in determining the standard land values. In addition, it followed the statutory valuation standards; the property tax valuation regulations were compatible with the constitutional requirements and the Rent Level Classification Ordinance, which classifies the entire Berlin city area indiscriminately in rent level 4 and provides for a 10% surcharge on the standardized monthly net cold rent, was lawful. The apartment owner also failed to prove, by means of a market value appraisal, that the market value of the property was significantly lower than that assumed by the tax office, as has since been incorporated into § 220 (2) BewG by the legislature.
Although the BFH confirmed the FG`s legal opinion, the decision of the BVerfG on the constitutional complaint currently pending remains to be seen.
The owner of an owner-occupied apartment located within a residential park in Saxony, which is assigned the special right of use of, among other things, a parking space in the underground garage as separate property, objected to the determination of the property tax value as of January 1, 2022, in accordance with the new property tax assessment law. In her opinion, individual circumstances affecting the value of the property were not taken into account in the standard land value used. She also considered the valuation according to the income approach to be unacceptable, as the owner-occupied apartment was treated as if it were used to generate income from renting and leasing, even though it was used for owner-occupancy and retirement provision; In this case, it would be more appropriate to report the book value as the property tax value. The flat-rate assumed income values were not identical to the rent that could actually be achieved or was customary in the locality. In addition, the underground parking space, which was not independent under land register law and to which the apartment owner had a special right of use, was not to be valued as separate property with the consequence of a special tax burden.
The FG did not consider the calculation of the property tax value for a rental property in Saxony to be unconstitutional, even though it was not based on the actual rent achieved, but on an average based on statistics, and did not differentiate between whether the property in question was owner-occupied or rented out. It was not objectionable that garage parking spaces were also included in the calculation of the gross income of the property, regardless of the type of building, year of construction, living space, and federal state, and regardless of whether the garage parking space was solely owned, separately owned, or only subject to a right of exclusive use. The legislature was entitled to disregard individual valuation factors and further differentiation according to specific features for reasons of practicability. The use of standard land values determined by expert committees is also permissible. The relevant valuation regulations must be interpreted in accordance with the constitution to mean that the taxpayer can prove a lower fair market value in individual cases at the level of property tax assessment, which is at least 40% below the assessed property value.
The BFH essentially concurs with this view. Deviating from the otherwise identical guiding principles of its decisions of November 12, 2025 (cases no. II R 25/24, II R 31/24, II R 3/25), the BFH emphasizes in its decision (case no. II R 31/24) that the economic unit of the residential property within the meaning of Section 249 (1) No. 4 BewG also includes an underground parking space which the residential property owner uses on the basis of a special right of use granted to him, without the special property extending to the parking space.