Energy renovation& the tax

Tax deduction for energy renovation: is it possible??

Up to can deduct 000 euros from your tax bill for energy-efficient refurbishment. Take advantage of this opportunity and read here what exactly you need to do to do this.

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The tax office rewards energy-efficient renovation with a tax bonus

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

Citizens who renovate their homes to make them more energy-efficient can claim a 20 percent tax credit on their income tax returns. 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-efficient renovation: BEG subsidy or tax?

Since 1 January 2009, the federal government has been offering. January 2020, homeowners will receive a tax bonus for the energy-efficient renovation of the properties they use themselves.

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

But you have to choose one of the funding instruments, so either BEG through kreditanstalt fur wiederaufbau (kfw) or bundesamt fur wirtschaft und ausfuhrkontrolle (BAFA) or finanzamt.

Can anyone deduct the energy renovation from tax??

No, the tax bonus for energy-efficiency measures is only offered to private individuals with owner-occupied residential property. In section 35c of the income tax act (estg) you can read the legal provisions.

For example, if you own a second home and/or a vacation home and you are the sole occupant, you can also claim the tax bonus for renovation measures for each of these properties. It is important that you have no rental income. If you only live in part of your house and rent out the rest, you can only claim the owner-occupied area for tax purposes. If you are a co-owner, you can also deduct the costs of the energy-efficient renovation only on a pro rata basis.

What are the tax incentives for energy-efficient renovation??

You can deduct 20 percent of your costs over 3 years. In total, a tax reduction of 40.000 euro 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 it is then only 6 percent.

The sum of 40.000 euro, however, is only used up if you exceed the investment ceiling of reach the amount of 000 euro for your renovation measures. The calculated amounts are deducted from your income tax due each year.

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 does not pay off. 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 only receive a subsidy for energy-efficient renovation measures with which you can save between the 1. January 2020 and the 31. you have started and completed the investment by December 2029. This is advantageous for you in so far as the maximum tax bonus of 40.000 euro per house or apartment applies.

You are allowed to carry out more than one measure during this period until you reach the maximum refund amount of 40.000 euro has been reached. For each of the renovations – as already mentioned – the tax office will reimburse you a total of 20 percent of the costs spread over 3 years.

Examples of tax deductions for energy renovations

Example 1: you insulate your single-family home with a composite thermal insulation system (CICS). For this renovation measure you incur costs of 20.000 euro. In the first and second tax year you can deduct 7 percent of this sum. Your tax saving is therefore 1.400 euro. In the third year, you deduct 6 percent, which corresponds to a tax saving of 1 percent.200 euro corresponds. In total you will achieve a tax saving of 4.000 euro. Because the maximum amount of subsidy is 40.000 euro, in the following years until the end of 2029 you can deduct the remaining 36.use 000 euros for additional refurbishment measures.

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

Is the tax bonus for energy-efficient renovation linked to technical requirements??

In principle, however, you can claim the tax reduction for the same measures that are supported by the BEG. This means, among other things, that oil heating systems are not eligible for tax incentives and gas heating systems are eligible only in combination with a renewable heat source (such as a solar thermal system, heat pump or pellet heating system). Tax reductions are available for these measures:

  • Thermal insulation of walls, roof surfaces and ceilings
  • Renewal of windows and exterior doors
  • Summer thermal insulation
  • Installation or replacement of a ventilation system
  • Renewal of the heating system
  • Installation of digital systems to optimize energy operation and consumption
  • Optimization of existing heating systems, if older than 24 months

What to consider when filing your tax return?

If you would like to have a part of your financial expenses for the energetic reorganization refunded by the tax, this is of course connected with some conditions:

  • You must occupy the house yourself. Rented apartments or houses are not eligible for tax relief.
  • The building must be more than 10 years old when the renovation begins. Here the date of the building application or the date of submission of the building documents counts.
  • The construction measures are to be carried out in the period 1. January 2020 to 31. December 2029 to be carried out.
  • The renovation work may only be carried out by recognized specialist companies. There is no subsidy for own work. The tax office has a form that the respective trade or craftsman must fill out to certify that the minimum energy requirements for the tax credit according to § 35c estg are met.
  • Invoices from the contractors must be submitted in German. 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 clear what measures have been implemented, what work has been done and, of course, the exact address of the renovated building must be listed. Because the tax office does not recognize cash payments, all invoices from specialist companies must always be paid by bank transfer.

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

If you want to claim the tax bonus for owner-occupied residential property, you must fill in the "anlage energetische mabnahmen – aufwendungen fur energetischemabnahmen bei zu eigenen wohnzwecken genutzten gebauden" (annex for energy measures in buildings used for owner-occupied 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 energy renovation in 3 tax returns in a row – for example for 2021, 2022 and 2023. Otherwise you will not receive the full tax incentive.

If in one of the 3 years you cannot fully use the tax reduction because the amount of income tax is lower than the amount of the refund, you cannot carry over the balance of that tax year to another year.

Get advice from experts on the subject of energy-efficient renovation and taxation

Tax and subsidies are very complex issues. In order not to waste money unnecessarily, involve experts before starting the renovation work. They can also tell you which subsidy option – tax or BEG – is best suited to your case.

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Christina Cherry
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