Anyone who carries out energy-efficiency improvements on their owner-occupied home can deduct up to 40,000 euros directly from their income tax liability. This is based on Section 35c of the Income Tax Act (EStG). However, not everyone receives the full amount, and formal errors can result in the tax benefit being lost entirely.
Who benefits and what is funded
The tax relief applies to residential properties that are at least ten years old and are occupied by the owner themselves during the relevant calendar year. Properties used solely for letting are expressly excluded. The property may be situated in Germany, another EU Member State or within the European Economic Area.
Eligible measures include, amongst others, the insulation of external walls, roofs and floor slabs; the replacement of windows and external doors; the installation of heat pumps, pellet systems or solar thermal systems; and the fitting of digital control systems for energy consumption. Hydraulic balancing of the heating system is also included. Important: The work must be carried out by an approved specialist contractor. Work carried out by the homeowner is not recognised for tax purposes.
How much is the tax benefit, exactly?
Twenty per cent of the eligible costs are deducted directly from the tax liability, up to a maximum of 40,000 euros per property. The upper limit for eligible costs is 200,000 euros. The grant is spread over three years: seven per cent in each of the first and second years, and six per cent in the third year. Any unused amounts lapse.
If you also engage an energy adviser, 50 per cent of their fees can be fully deducted in the first year.
Formalities: What you absolutely must bear in mind
In a judgement dated 13 August 2024 (Ref. IX R 31/23), the Federal Fiscal Court clarified that, for tax purposes, a restructuring measure is only deemed to have been completed once all invoices have been paid in full. Cash payments are generally not eligible for funding. Bank transfers are mandatory.
The invoice itself must state the services provided, the proportion of the work carried out and the address of the property in German. In addition, a tax return, including the annex for energy efficiency measures, must be submitted in each of the three funding years. Since 1 January 2025, specialist contractors have only been permitted to use the updated model form issued by the Federal Ministry of Finance as a certificate.
A special feature of co-ownership: the share entered in the land register is what counts
In a recent judgement, the Münster Finance Court has ruled that, in the case of co-owners, it is not the amounts actually paid that are decisive, but rather the share of ownership as recorded in the land register (Münster Finance Court, judgement of 23 June 2026, Ref. 6 K 1431/23 E). In the case in question, an owner holding a one-quarter share in a two-family house had paid for a combined heat and power plant entirely on their own. Nevertheless, the tax office only recognised 25 per cent of the costs for tax purposes. The court upheld this reduction.
Anyone who pays more than their share is entitled to claim compensation from the other co-owners under civil law; however, for tax purposes, the reduction is limited to their own share as recorded in the land register. The judgement is not yet final; an appeal to the Federal Fiscal Court has been granted.
Cannot be combined with other funding schemes
Tax incentives under Section 35c of the Income Tax Act (EStG) and federal schemes such as KfW grants or BAFA funding cannot be combined for the same project. Anyone who has already received government grants must make a choice. In individual cases, it may be advisable to work out the figures for the different options before the project begins.
If you have specific questions regarding tax planning for a restructuring, it is advisable to consult a tax adviser, as errors in the process could jeopardise the entire tax benefit.
Source: Haufe: Property
This post and the accompanying image were created with the help of AI and have been editorially reviewed.
