Energy-efficient renovation and taxes: Current tax incentives for real estate and overview of changes

Homeowners who carry out energy-efficient renovations on their owner-occupied homes can now benefit from expanded tax advantages. The federal government has aligned the regulations in the Income Tax Act (EStG) with the federal funding for efficient buildings (BEG). In addition to grants from the BEG, investments in energy-efficient renovation measures can now also be claimed for tax purposes. Section 35c of the Income Tax Act (EStG) makes it possible to deduct up to 40,000 EUR in taxes for these measures on owner-occupied residential buildings. This version is shorter and still contains all essential information.

New regulations for tax incentives: How it works now – Energy-efficient renovation and taxes

The provisions of the regulation apply to all measures starting after December 31, 2024. These include in particular measures such as summer thermal insulation, the modernization or improvement of heating systems, and the installation of digital systems for optimizing energy consumption and operation.

These regulations do not apply to new buildings.

The central text of the draft is:

„The regulation adopts various amendments to the federal funding for efficient buildings under grant law – individual measures in the appendices of the ESanMV and thus in the tax incentives.

This concerns, among other things, the requirements for energy efficiency and seasonal performance factor of heat pumps. The new specifications for dust emissions from biomass heating systems (compliance with the Ordinance on Small and Medium-Sized Firing Installations, 1st BImSchV) are based on the basic funding of the Federal Funding for Efficient Buildings – Individual Measures.

The explanations on heating optimization are streamlined and expanded to include measures for the low-investment conversion of hydrogen-ready heating systems to 100 percent hydrogen operation as well as for emission reduction in biomass heating systems.

The category of innovative heating technology based on renewable energies, which is not relevant for the tax reduction under Section 35c of the Income Tax Act (EStG), will not be continued.“

With the new regulation, various changes to the federal funding for efficient buildings are being implemented, which relate to individual measures and their tax incentives.

Important points regarding the changes for energy-efficient renovation

• Energy efficiency and heat pumps: New requirements are being established for the energy efficiency and performance of heat pumps.
• Dust emissions from biomass heating systems: The new regulations for dust emissions from biomass heating systems are based on the Ordinance on Small and Medium-Scale Firing Installations (1st BImSchV) and are aligned with the basic funding provided by the Federal Funding for Efficient Buildings.
• Heating optimizations: The guidelines for optimizing heating systems are being simplified and expanded with additional measures. These measures include the cost-effective conversion of heating systems to 100 % hydrogen operation as well as the reduction of emissions in biomass heating systems.
• Innovative heating technology: The category of innovative heating technology based on renewable energies that is not relevant for the tax reduction pursuant to Section 35c of the Income Tax Act (EStG) will not be continued.

Tax incentives: Which costs are deductible

The tax reduction amounts to 20 percent of the incurred costs, up to a maximum of 200,000 EUR. This means that the maximum tax subsidy can be up to 40,000 EUR.

Tax Office Proof: New Certification Requirements

To receive the tax bonus, certificates from the executing specialist company are required. The German Taxpayers' Federation (BdSt) reports that the corresponding forms have been updated. These certificates serve as proof for the tax office that the measures were carried out properly and complied with statutory regulations.

The Federal Ministry of Finance (BMF), in cooperation with the federal states, has developed standard forms. For energy-efficient measures in 2024, these forms have been expanded to include additional information on so-called accompanying measures.

BMF letter „Updated certificates for the tax incentive for energy-efficient building renovation“

Exclusion criteria for tax incentives for energy-efficient renovations

If you have received financial support from the KfW bank or the Federal Office for Economic Affairs and Export Control (BAFA), you cannot deduct these costs from your taxes in addition, explains the Taxpayers' Association (BdSt).

Options when waiving subsidies

If you forgo state subsidies or have not received them, you can instead deduct a portion of the costs from your taxes. With the appropriate certificates, you can claim a total of 20 percent of the investment costs for tax purposes over a period of three years. This works as follows:

• In the first two years, seven percent of the expenses can be deducted each year, up to a maximum of 14,000 EUR per year.
• In the third year, another six percent of the expenses can be deducted, up to a maximum amount of 12,000 EUR.

If you invest 200,000 EUR in energy-efficient renovations, you can save up to 40,000 EUR in taxes.

Tax deductibility of preparatory measures according to the BdSt

The Taxpayers' Association points out that this tax relief only applies if the costs have not already been deducted elsewhere, for example as work-related expenses. Double tax relief is not possible.

Deductibility of surrounding measures

Even if taxpayers buy the materials themselves and only have the work carried out by a specialist company, they can claim these costs for tax purposes. These so-called ancillary measures include all additional costs required to prepare an eligible measure. Certificates are also required for this. The specialist company confirms that the measure was necessary and that the materials were used.

Subsidies for new gas heating systems canceled

The tax reduction pursuant to Section 35c of the Income Tax Act (EStG) applies to energy-efficient renovation measures that are started and completed between January 1, 2020, and December 31, 2029 (Section 52 (35a) sentence 1, second half-sentence of the EStG).

Eligible measures

Certain individual measures that are recognized as eligible for funding by the building support programs—since January 1, 2024, under the new Federal Funding for Efficient Buildings (BEG)—will be subsidized.

Cancellation of subsidies for gas heating systems

Funding for gas-driven heat pumps, gas condensing technology, and gas-hybrid heating systems pursuant to Section 35c of the Income Tax Act (EStG) was discontinued on January 1, 2023. The reason for this is that these technologies no longer meet the minimum technical requirements of the „Energy-Related Renovation Measures Ordinance“ (ESanMV).

Energy-related Renovation Measures Ordinance (ESanMV)

The ESanMV defines which minimum requirements energy efficiency measures on owner-occupied residential buildings must meet. This ordinance entered into force on January 1, 2020, and is a component of the Federal Government's 2030 Climate Action Program.

Important changes to the ESANMV

• First change: On March 26, 2021, the German Bundestag passed the first amendment to the ESanMV to implement the Building Energy Act (GEG) of November 2020.
• Second Amendment: On December 16, 2022, the Bundesrat approved another amendment to the ESanMV.

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FAQ – Frequently Asked Questions on Energy-Efficient Renovation and Tax Incentives

Can you deduct energy-efficient renovations from your taxes?

Yes, energy-efficient renovations can be deducted from taxes. Twenty percent of the costs for certain individual measures can be deducted from taxes spread over three years, up to a maximum of 40,000 EUR per residential property. In addition, 50 percent of the costs for energy-efficient construction supervision and expert planning can be deducted.

How are energy-efficient measures entered in the tax return?

The costs for energy-efficient renovation measures are claimed as part of the income tax return with the tax office. No prior application is required. For verification, certificates from the executing specialist company or a person authorized to issue them pursuant to Section 88 of the Buildings Energy Act (e.g., energy consultant) must be submitted. These certificates must correspond to an official template that is attached to the income tax return.

What subsidies are available for energy-efficient retrofitting?

In addition to tax incentives, there is the Federal Funding for Efficient Buildings (BEG), which offers grants for individual measures on existing buildings. Energy-related construction supervision and expert planning are also subsidized with 50 percent of the costs. In addition, there is the Federal Funding for Energy Consulting for Residential Buildings (EBW), which covers 80 percent of the consulting costs, up to a maximum amount of EUR 1,300 for single- and two-family houses and EUR 1,700 for larger buildings.

What proof is required for energy-efficiency measures?

For tax incentives, certificates from the executing specialized company or from energy consultants must be submitted. These certificates must confirm that the measures comply with statutory requirements. Official standard certificates must be used, which are available via the Federal Ministry of Finance.

What falls under energy-efficient measures?

The following individual measures for energy-efficient building renovation are eligible for funding:

• Thermal insulation of walls, roof areas, and top floor ceilings
• Replacement of windows or exterior doors
• Replacement or installation of summer thermal insulation
• Renewal or installation of a ventilation system
• Replacement of the heating system
• Installation of digital systems for energetic operational and consumption optimization
• Optimization of existing heating systems (older than two years)
• Energy-efficient construction supervision and expert planning

In addition, these measures must meet the minimum technical requirements of the Energy-Efficient Renovation Measures Ordinance (ESanMV).

First Ordinance Amending the Energy-Related Renovation Measures Ordinance (February 26, 2021)
Second Ordinance Amending the Energy-Efficient Renovation Measures Ordinance (November 25, 2022))
Third Ordinance Amending the Energy-Efficient Renovation Measures Ordinance (June 5, 2024)