The sale of rezoned properties after December 31, 2024 will be taxed at a higher rate in future. Anyone who rezones a property after December 31, 2024 and sells it after June 30, 2025 must expect to be taxed by the rezoning surcharge introduced with the Budget Accompanying Act 2025.

The government introduced several tax measures with the Budget Accompanying Act 2025. Among other things, it amended the Income Tax Act 1988 (“EStG 1988”). The introduction of Section 4 (3a) no. 6 and Section 30 (6a) EStG 1988 is intended to ensure that gains from reclassifications in connection with the taxation of property sales are recorded more effectively for tax purposes. The amendments entered into force on July 1, 2025.

Taxation of extraordinary increases in the value of properties

The aim of the amendment is to include extraordinary increases in the value of real estate in taxation. Both business and non-business property disposals are therefore included. The legislator defines the term “rezoning” in § 30 para. 4 no. 1 second and third sentences EstG 1988 essentially as a change of use that has taken place after the last acquisition for consideration and which enables development for the first time or corresponds to a building land rezoning. This also applies to a rezoning that is economically related to the sale, if this took place within five years of the sale, as well as to a purchase price increase due to a later rezoning.

The second variant considers, for example, the constellation in which property owner A initially sells his property, which is zoned as grassland and included as such in the purchase price, to real estate developer B and this is subsequently rezoned as building land by real estate developer B within five years. In this case, the rezoning surcharge must be credited retrospectively and the resulting increase in real estate income tax must be reported to the tax office as a retroactive event or an additional payment must be made. In order to prevent such disadvantages for the seller, mechanisms that economically compensate for any higher tax burden can be regulated in the purchase agreement.

Assessment basis and upper limits

Both in the case of the reclassification and sale of business assets (§ 4 para. 3a no. 6 EStG 1988) and in the case of the reclassification and private sale of land (§ 30 para. 6a EStG 1988), a gain resulting from the sale of the reclassified land (“capital gain”) must be increased by a reclassification surcharge of 30% for the calculation of the tax base. As the surcharge only covers gains or positive income, it does not apply if a loss results from the sale of the land. In the case of land on which buildings have already been erected, the reclassification surcharge only applies to the portion of the capital gain attributable to the land (and not to that of the building).

The reclassification surcharge is only to be taken into account to the extent that the sum of the capital gain and the reclassification surcharge does not exceed the sales proceeds, otherwise the reclassification surcharge is to be reduced accordingly (see the example below). The sum of the sales proceeds and the (possibly reduced) reclassification surcharge is the tax assessment basis for real estate income tax.

The rededication surcharge in the context of a case study

In 2010, property owner A buys a plot of land that is zoned as grassland for EUR 10,000.00. The plot is rezoned as building land in 2025 and A sells the undeveloped plot for EUR 100,000.00, thereby realizing a capital gain of EUR 90,000.00. The rezoning surcharge amounts to 30% of the capital gain, i.e. EUR 27,000.00. Adding the capital gain and the rezoning surcharge results in income of EUR 117,000.00. In this case, the sales proceeds of EUR 100,000.00 are exceeded by EUR 17,000.00, which is why the rezoning surcharge must be reduced to EUR 10,000.00 (27,000.00 - 17,000.00). In this example, the assessment basis for real estate income tax is EUR 100,000.00 (see ME Budget Accompanying Act 2025, 16/ME 28. GP 3).

Conclusion

The reclassification surcharge was introduced at the same time as the amendment to the Real Estate Transfer Tax Act, with which the government tightened the taxation of property transactions in the context of share deals. From now on, property owners should take into account in property transactions that increases in the value of properties / land due to reclassifications carried out from January 1, 2025 onwards will be taxed additionally as part of real estate income tax. A higher tax burden may also be incurred retrospectively if, for example, grassland is sold but is subsequently reclassified as building land by the buyer. Any associated economic disadvantages for the property owners should be remedied in the purchase agreement.