Energetic refurbishment & the tax

Carsten Kannengieber

The energetic reorganization from the tax deductible: Is this?

Up to 40.000 euro can you for the energetic reorganization fiscally set off. Take advantage of this opportunity and read here what exactly you need to do to do so.

Content of the blog article

The tax office rewards energy renovation with a tax bonus

Investing in the thermal insulation of the building envelope or in an efficient heating system pays off twice: for the climate and for your finances. However, the energetic reorganization is not exactly favorable. If you can’t or don’t want to take advantage of government subsidy programs, you have the option of recouping some of your investment through the tax office.

Citizens who renovate their house to make it more energy efficient can have 20 percent of their costs subsidized on their income tax return. You can even include up to 50 percent of the costs for energy consulting in your tax return. Below you can find out who can take advantage of the tax bonus for energy-efficient renovation, what requirements must be met and how to proceed correctly.

Energy renovation: BEG subsidy or tax?

The federal government offers since 1. January 2020 homeowners a tax bonus for the energetic building reorganization of the real estates used by themselves.

In plain language, this means for you that, as an alternative to the federal subsidy for efficient buildings (BEG), you can deduct costs for renovation measures per house or apartment of 20 percent of the financial expenses from your taxes. In contrast to the BEG subsidy, you can even claim material, wage and travel costs.

But you have to choose one of the subsidy instruments, i.e. either BEG via Kreditanstalt fur Wiederaufbau (KfW) or Bundesamt fur Wirtschaft und Ausfuhrkontrolle (BAFA) or tax office.

Can anyone deduct the energy renovation from tax?

No, the tax bonus for energy-saving measures is only offered to private individuals with owner-occupied residential property. In paragraph 35c of the Income Tax Act (EStG) you can read the legal provisions.

If, for example, you own a second home and/or a vacation home and are the sole user, you can also claim the tax bonus for renovation measures for each of these properties. It is important that you do not have any rental income. If you only live in part of your house and rent out the rest, you can only claim the owner-occupied part for tax purposes. If you are a co-owner, you can also only deduct a proportion of the costs for the energy-efficient refurbishment.

How high is the tax incentive for the energetic refurbishment?

You can deduct 20 percent of your costs spread over 3 years. In total, a tax reduction of 40.000 euros is possible. In the first year, i.e. when the renovation measures took place, and in the following year, you can deduct 7 percent of the renovation costs in your tax return. In the third year, the share is only 6 percent.

The sum of 40.However, you will only be able to take advantage of the tax credit of EUR 000 if you do not exceed the investment limit of EUR 200,000.000 euros for your renovation measures. The calculated amounts are deducted from your income tax due.

The tax incentive is particularly interesting if you have to pay a lot of income tax. If you are already a pensioner, for example, and therefore pay little or no tax, this type of subsidy is not worthwhile. Then the BEG is the first choice.

Reach the maximum tax bonus step by step

There is an expiry date for the tax bonus. You will only receive a subsidy for energy-efficient renovation measures that you have carried out between the 1st of January and the end of the year. January 2020 and the 31. December 2029 and have also completed them. This is advantageous for you because the maximum tax bonus of 40.000 per house or apartment.

It is allowed to carry out several measures within this subsidy period, until you reach the maximum refund amount of 40.000 Euro have been reached. For each of the renovations – as already mentioned – the tax office reimburses you a total of 20 percent of the costs spread over 3 years.

Examples of tax deduction for energetic renovation

Example 1: You insulate your family home with a composite thermal insulation system (ETICS). For this renovation measure you incur costs of 20.000 euros. In the first and second tax year, you can deduct 7 percent of this sum. Your tax savings thus amount to 1.400 euros. In the third year, you deduct 6 percent, which amounts to a tax saving of 1.200 euros. In total you achieve a tax saving of 4.000 euros. Because the maximum subsidy amount is 40.000 euros, you can deduct the remaining 36 euros in the following years until the end of 2029.000 euros for further refurbishment measures.

Example 2: You live together with your partner in a house that you both bought with a 50 percent co-ownership share. The energy renovation amounts to 75.000 euros. Of this, each of you pays 50 percent, i.e. 37.500 euros. Since you are not married, but both live in the house, each of you can receive half of the tax bonus (20.000 euros) in your income tax return. Since the tax advantage in the first two years is 7 percent, each of you will receive 2 percent for the first and second tax year.625 euros tax reduction and in the third year 2.250 Euro (6 percent). In total your tax bonus is 7 each.500 euros and in total at 15.000 euros. This means that 25 % of the maximum subsidy amount is still available.000 euros left over, which you can use until the end of 2029 for additional energy-saving renovation measures if necessary.

Is the tax bonus for energy renovation linked to technical specifications?

In principle, however, it can be said that you can claim the tax reduction for the same measures that the BEG also supports. This means, among other things, that oil heating systems are not eligible for tax relief and gas heating systems are only eligible for tax relief in combination with a renewable heat source (e.g. solar thermal system, heat pump or pellet heating system). Tax reductions are available for these measures:

  • thermal insulation of walls, roof surfaces and floor ceilings
  • Renewal of windows and exterior doors
  • summer heat protection
  • Installation or renewal of a ventilation system
  • Renewal of the heating system
  • Installation of digital systems for energetic operation and consumption optimization
  • Optimization of the existing heating system, if it is older than 24 months

What to consider when filing your tax return?

If you want to have a part of your financial expenses for the energetic renovation refunded through the tax, this is of course subject to some conditions:

  • You must live in the house yourself. Rented apartments or houses are not eligible for tax incentives.
  • The building must be older than 10 years at the beginning of renovation. Here the date of the building application or the submission of the building documents counts.
  • The construction measures are in the period 1. January 2020 to 31. December 2029.
  • The renovation work may only be carried out by recognized specialized companies. There are no subsidies for personal contributions. There is a form from the tax office that the respective trade or the corresponding craftsman company must fill out to certify that the minimum energy requirements for the tax credit according to § 35c EStG are met.
  • Invoices of the executing specialized companies must be submitted in German language. This is due to the fact that you can also claim the tax reduction, for example, for a vacation home in another European country. It must also be clearly visible what measures have been implemented, what work is involved and, of course, the exact address of the renovated building must be listed. Because the tax office does not recognize cash payments, all invoices of the specialized companies are always to be paid by bank transfer.

Where do I enter the energetic measures in the tax return??

If you want to claim the tax bonus for owner-occupied residential property, you must fill in the “Energetic measures annex – expenses for energetic measures for buildings used for own residential purposes” in your income tax return. However, the information you have to provide in the form is manageable.

Note: as mentioned, the tax bonus is granted on a staggered basis over 3 years. Therefore, make sure that you have to declare the same expenses for the energetic refurbishment in 3 tax returns in a row – for example, for 2021, 2022 and 2023. Otherwise you will not get the full tax incentive.

If you cannot fully use the tax reduction in one of the 3 years because the amount of income tax is lower than the refund amount, you cannot transfer the remaining amount of this tax year to another year.

Get expert advice on the subject of energy renovation and tax

Tax and subsidies are very complex topics. In order not to give away money unnecessarily, involve experts already before the start of renovation work. They can also tell you which subsidy option – tax or BEG – is best suited in your case.

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