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Tax bonus under § 35c EStG: requirements and relation to the BEG

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Besides the BEG grant (federal funding for efficient buildings), there is a second route for owner-occupied residential property: the tax reduction under § 35c of the Income Tax Act (Einkommensteuergesetz, EStG). It works through income tax, but requires a specialist contractor, a certificate and a particular method of payment. For the same measure, the two routes are mutually exclusive.

Who and what is eligible

The provision applies to energy-related measures on an owned building located in the EU or the EEA and used for the owner’s own residential purposes. The building must be more than ten years old when the measure is carried out; what counts is the start of construction. The reduction is available only if the owner uses the building exclusively for their own residential purposes in the calendar year concerned.

The following measures are eligible:

  • thermal insulation of walls, roof surfaces and storey ceilings,
  • replacement of windows or external doors,
  • replacement or installation of a ventilation system,
  • replacement of the heating system,
  • digital systems for operation and consumption optimisation,
  • optimisation of existing heating systems, provided they are more than two years old.

Amount of the reduction

Calendar year Rate on expenditure Maximum amount of the reduction
Year in which the measure is completed 7% €14,000
Following year 7% €14,000
Year after that 6% €12,000

For each eligible property, the maximum amount of the tax reduction is €40,000; several individual measures can be combined. By calculation, this exhausts expenditure of up to €200,000. Because the reduction lowers the scheduled income tax, the benefit depends on the individual tax liability.

Costs for an energy consultant approved by the BAFA (Federal Office for Economic Affairs and Export Control) who accompanies the measures in planning terms reduce the tax, by way of exception, by 50 percent of the expenditure. The provision does not regulate an approval procedure as with the BEG; it provides for the reduction “on application”.

Two further limits concern ownership and double counting. If several persons own the property, the reduction can be claimed only once in total for the property. Expenditure that has already been taken into account as business expenses, income-related expenses, special expenses or extraordinary burdens is excluded; let properties are therefore ruled out already because of the requirement of owner occupation.

Specialist contractor, certificate, method of payment

  • Specialist contractor: The measure must be carried out by a specialist contractor. The ordinance names trades such as plastering, painting and varnishing or roofing work, but requires that the measure belongs to the trade of the company.
  • Certificate: The specialist contractor certifies, on an officially prescribed form, that the requirements are met in principle and as to amount.
  • Minimum requirements: The Energy Renovation Measures Ordinance (Energetische Sanierungsmaßnahmen-Verordnung, ESanMV) sets them out for each measure in annexes, for walls for example maximum values of the thermal transmittance coefficients. The specialist contractor confirms compliance. How to read characteristic values in data sheets is explained in the article Reading the data sheet.
  • Invoice and payment: The invoice must show the measure, the labour and the address of the property, be in German and be paid to the account of the service provider.

Time limits

The provision applies to measures whose execution began after 31 December 2019 and which are completed before 1 January 2030. For measures requiring a permit, the start is the building application; for other projects that are exempt from permit, notification and procedure, it is the start of construction work. The current version of the ESanMV is to be applied for the first time for the 2025 assessment period and applies to measures begun after 31 December 2024.

In the version available, the ordinance still refers to the Building Energy Act (Gebäudeenergiegesetz, GEG). The act is now called the Building Modernisation Act (Gebäudemodernisierungsgesetz, GModG); references to individual sections should therefore be checked against the current version, and the article GEG is now GModG provides details.

Relation to the BEG

§ 35c(3) excludes the reduction if the measure is publicly funded and low-interest loans or tax-exempt grants are used for it. The BEG guideline mirrors this: applicants must undertake not to apply for tax relief for the same measure. Different measures, on the other hand, can be combined, for example a BEG grant for the heating with the tax reduction for wall insulation.

Feature BEG grant, building envelope Tax reduction § 35c
Procedure Application in the BAFA portal, contract only subject to funding condition Reduction on application, works through income tax
Rate 15% of eligible expenditure; with iSFP bonus (individual renovation roadmap) 20% on the part above the threshold 7% + 7% + 6% = 20% over three years
Upper limit eligible expenditure: €30,000 for the first residential unit Reduction: €40,000 per property
Specialist involvement Energy efficiency expert Specialist contractor with certificate
Who all investors, including companies only owners who live there themselves

A worked example with freely chosen assumptions: with expenditure of €30,000, without iSFP and with sufficient tax liability, the BEG would give a grant of €4,500. The tax reduction would be €6,000, spread as €2,100, €2,100 and €1,800 over three years. How timing, requirements and the cost of the energy efficiency expert balance against one another can only be judged in the individual case.

For many owners, it remains open whether the tax liability of the coming three years can absorb the reduction at all. This can only be answered with one’s own income tax data, not with a table.

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