Which measures for energy-efficient building renovation are eligible for tax incentives?

The climate protection programme, with its expanded funding programmes, ensures that as many property owners as possible can invest in modernising their homes when needed. The following energy-efficient building renovation measures are supported under the climate protection programme:

• Wall insulation
• Roof insulation
• Storey ceiling insulation
• Renewal of windows or external doors
• Renewal or installation of a ventilation system
• Renewal of the heating system
• Installation of digital systems for optimising energy operation and consumption
• Optimisation of existing heating systems.

In addition, energy-related construction supervision and specialist planning are eligible for tax incentives.

Technical minimum requirements apply to these measures, which must be met for funding. For this reason, the tax reduction under § 35c can only be claimed if a corresponding certificate is submitted with the tax return. The certificate can be confirmed by a specialist company or an energy consultant (a person authorised to issue certificates under § 21 Energy Saving Ordinance).

Admittedly, when thinking of energy measures, one primarily considers insulation, the renewal of windows and external doors, or the renewal of the heating system. It is somewhat less known that since 2021, "summer heat protection" is also eligible for funding. This is somewhat hidden in Appendix 4a to the ESanMV.

It specifically states: "Funding is provided for the replacement or initial installation of external sun protection systems with optimised daylight provision, for example, through light guidance systems or radiation-dependent control. The requirements of DIN 4108-2:2013-02 for minimum summer heat protection must be met."

The "Second Ordinance Amending the Energy-Efficient Renovation Measures Ordinance" has transferred changes to the "Federal Funding for Efficient Buildings (BEG) - Individual Measures" to ensure the technical consistency of the funding. This includes the removal of funding for gas-powered heat pumps, gas condensing technology, and gas hybrid heating systems, as well as adjustments to building and heating network requirements. For biomass heating systems, the BEG changes to room heating efficiency and particulate matter are implemented.

This ordinance applies to measures from 31.12.2022.

Which measures for energy-efficient building renovation are eligible for tax incentives?

What is the funding amount for energy-efficient building renovation?

Tax incentives for energy-efficient renovation measures (§ 35c EStG)

Homeowners can claim a tax reduction under § 35c EStG for multiple individual energy-efficient measures, even if they are carried out independently of each other.

Amount of funding for energy-efficient renovation

For energy-efficient measures on owner-occupied property, 20% of the costs, up to a maximum of 40.000 Euro per property, are eligible for tax relief. The tax reduction is spread over three years:

• Year 1 and 2: 7% of the costs each year, up to 14.000 Euro per year
• Year 3: A further 6%, up to 12.000 Euro

The deduction is made directly from the tax liability, not from the taxable income.

Construction supervision and specialist planning: 50% deductible

For specialist energy planning and construction supervision by a certified energy consultant, 50% of the costs can be deducted from the tax liability.

You can find suitable experts at:
www.energie-effizienz-experten.de

Important conditions for the tax deduction (FG Hamburg, judgement of 06.08.2024, ref. 1 K 73/24)

• The funding can only be granted if the taxpayer has a sufficient tax liability in each of the three funding years.
• If the tax is less than the maximum deductible amount (e.g. under 14.000 Euro in the first year), the funding will be reduced accordingly.
• An extension of the funding period beyond three years is not possible.

What is the funding amount for energy-efficient building renovation?

What conditions must be met in order to claim the tax reduction?

Requirements for tax reduction for energy-efficient measures under § 35c EStG

To claim the tax reduction for energy-efficient measures under § 35c EStG, certain conditions must be met:

• Owner-occupation of the property: The property must be used for own residential purposes or provided free of charge to other persons.
• Location of the property: The residential building must be located in Germany or within the EU or EEA.
• Age of the property: At the start of the energy-efficient measure, the residential building or flat must be at least 10 years old.
• Certificate according to the Energy Saving Ordinance (EnEV): A certificate according to § 21 EnEV from a specialist company or energy consultant must be available. This certificate is generally issued for the owner(s) of the property.
• Invoice with correct details: You must have received an invoice containing the following details:
  • The eligible energy-efficient measures.
  • The labour of the specialist company.
  • The address of the eligible property.
• Payment to the service provider's account: Payment must be made cashless to the service provider's account. Cash payments, cash deposits, partial cash payments or cash cheques are not eligible.

Special features and notes

• Instalment payments: The Federal Fiscal Court has ruled that the tax reduction for energy-efficient measures can only be granted once the installation has been completed and the invoice amount has been fully paid into the installation company's account (BFH ruling of 13.08.2024, IX R 31/23).
• Full payment of the invoice: The measure is only considered complete when the invoice is fully paid. Partial payments are not sufficient to claim the reduction in the respective tax year.
• Combination with other tax reductions: If the tax reduction under § 35a para. 3 EStG (craftsman services) is claimed for the labour costs of an energy-efficient measure, additional funding under § 35c EStG is excluded.

Practical example

A couple had a new boiler installed in 2021. The total costs amounted to 8.000 Euro. The couple paid 200 Euro monthly in instalments. In 2021, only 2.000 Euro were paid. The tax office rejected the tax reduction because full payment would not be made until 2024. The tax reduction for energy-efficient measures can only be claimed with the final payment.

Conclusion

To receive the tax reduction under § 35c EStG, you must ensure that the invoice is fully paid and that all formal requirements, such as the issuance of a certificate and correct invoicing, are met. Make sure no cash payments are made, and plan the payment in the respective tax year accordingly to claim the reduction promptly.

What conditions must be met in order to claim the tax reduction?

What alternatives are there to tax incentives?

As an alternative to tax incentives, public building funding programmes can be used. These include, for example, low-interest loans or tax-free grants offered by the Kreditanstalt für Wiederaufbau (KfW Bank), the Federal Office for Economic Affairs and Export Control (BAFA), and state-owned development banks.

If you make use of one of these funding programmes, simultaneous tax incentives for the same energy renovation measure are not possible.

It is harmless if you have received grants solely for energy consulting. In this case, no tax reduction can be claimed for the costs of the energy consulting. However, for the energy measures carried out as a result of the energy consulting, for which no public funding was received, the tax reduction can be applied for.

What alternatives are there to tax incentives?

Which companies can issue a specialist certificate?

Any specialist company that meets the requirements of Section 2 of the "Energetische Sanierungsmaßnahmen-Verordnung ESanMV".

All companies operating in the following trades are considered "specialist companies":

• Masonry and concrete work,
• Plastering work,
• Painting and varnishing work,
• Carpentry and joinery work,
• Thermal, cold and sound insulation work,
• Stonemasonry and stone carving work,
• Well construction work,
• Roofing work,
• Plumbing work,
• Glazing work,
• Installation and heating work,
• Refrigeration engineering,
• Electrical engineering and installation,
• Metal construction,
• Stove and heating construction,
• Roller shutter and sun protection technology,
• Chimney sweeping, tiling, slab and mosaic laying work,
• Concrete stone and terrazzo production,
• Window installation (with appropriate specialisation).

Until 2021: Any person authorised to issue energy performance certificates under Section 21 EnEV. This group includes:

Energy consultants, i.e. energy consultants approved by BAFA for the "Energy Consulting for Residential Buildings" funding programme.

Energy efficiency experts listed for the KfW funding programme "Energy-efficient Construction and Renovation – Residential Buildings" (KfW programmes 151/152/153 and 430).

All other persons with authorisation to issue under Section 21 EnEV (e.g. due to a university degree qualifying for a profession mentioned in Section 21 EnEV in conjunction with further training in energy-saving construction).

The prerequisite is that a person from the above-mentioned group has been commissioned by the building owner or the executing specialist company with the planning support or supervision. The energy consultant's certificate must state the client. The existence of the authorisation to issue under Section 21 EnEV must be confirmed.

From 2022: Persons with authorisation to issue under Section 88 of the Building Energy Act (GEG), who have been commissioned by the company or the taxpayer with the planning support or supervision of the energy measure.

Note: The regulation amending the Energetische Sanierungsmaßnahmen-Verordnung of 14 June 2021, BGBl. I p. 1780, adapted the ESanMV to the new Federal Funding for Efficient Buildings.

The Federal Ministry of Finance describes in detail in a decree (BMF letter of 31.3.2020, IV C 1 - S 2296-c/20/10003) the requirements for issuing such certificates.

The "Second Regulation Amending the Energetische Sanierungsmaßnahmen-Verordnung" has transferred changes to the "Federal Funding for Efficient Buildings (BEG) - Individual Measures" to ensure the technical alignment of the funding. This includes the removal of funding for gas-powered heat pumps, gas condensing technology and gas hybrid heating systems, as well as adjustments to building and district heating network requirements. For biomass heating systems, the BEG changes to room heating efficiency and particulate matter are implemented.

This regulation applies to measures from 31 December 2022.

The costs for the energy consultant are to be considered at 50 percent of the expenses in the year the measure is completed, deviating from the general regulation, and not spread over three years. The costs for the energy consultant as well as the costs for issuing the certificate under Section 35c (1) EStG are each - like the expenses for the energy measure itself - covered by the maximum tax reduction amount of 40,000 Euro (BMF 14.1.2021, IV C 1 - S 2296-c/20/10004 :00, BStBl 2021 I p. 103 para. 50).

Which companies can issue a specialist certificate?

What applies to homeowners' associations?

If energy efficiency measures are carried out on a building consisting of several owner-occupied flats, a certificate must generally be issued for each individual flat. It is acceptable for the specialist company to issue a collective certificate for simplification purposes if the renovation expenses relate to the entire building or if the expenses attributable to the private property of individual flats can be clearly and unambiguously allocated to the individual flats.

If the owners' association has appointed a manager to handle its tasks and interests, the manager should be addressed as the client. In these cases, it is sufficient for the manager to allocate the expenses attributable to the co-ownership according to the ratio of the co-ownership share and inform the individual flat owner.

To do this, the manager creates a number of copies of the specialist company's certificate corresponding to the number of beneficiaries, on which they note the amount of expenses attributable to each beneficiary for the entire building and allocate the expenses attributable to the private property of individual flats to the specific flat owners.

What applies to homeowners' associations?