Tax benefits for energy-efficient building refurbishment

From 2020, owners of residential buildings that are more than 10 years old can apply for a special tax benefit. The application can be made in a special form that is part of the German income tax return. This benefit can only be used if the owner uses the property for their own residential purposes.

The tax benefit can be used if the energy-efficient refurbishment has been started after 31 December 2019 and will be finalised before 1 January 2030. The following measures and improvements are supported:

1. Insulation of walls, roofs, floors and ceilings
2. Replacement of windows, outside doors and heating systems
3. Replacement or installation of ventilation equipment
4. Installation of digital systems for energy performance optimisation
5. Optimisation of existing heating systems if they are inservice for more than two years

In total 20% of the expenses can be deducted from the income tax of the year of refurbishment and the following two years but not more than 40,000 Euro in total. In the year of refurbishment and the following year 7% and in the third year 6% can be deducted. In addition to this, 50% of the costs of a certified energy consultant can also be deducted.

Example:

In the year 2020 a homeowner spends 215,000 Euro on energy-efficient refurbishments and 3,000 Euro for a certified energy consultant. Because of the total amount he spent, the homeowner is limited to a maximum of 40,000 in total plus 50% of the fees of his energy consultant. He can therefore deduct the following amount from his German income tax:

• In 2020 he can deduct 15,500 Euro (Energy efficient refurbishment with maximum amount of 14,000 Euro - 7% of 40,000 Euro - and 50% of the fees of the energy consultant)
• In 2021 he can deduct 14,000 Euro (Energy efficient refurbishment with maximum amount – 7% of 40,000 Euro)
• In 2022 he can deduct 12,000 Euro (Energy efficient refurbishment with maximum amount – 6% of 40,000 Euro)

The owner needs a certificate from the builder or craftsman’s business who carried out the work. The certificate must be on an official form.

Notes:

1. The benefits can also be used by expatriates who are tax resident in Germany.
2. The benefits can be used for residential homes in other EU-member states or countries of the European Economic Area (Norway, Iceland, Liechtenstein) as well.
3. The benefits can only be used if the owner uses the property as residential home either on his or her own or together with spouses, family members or other persons. If the owner rents the property out or provides it free of charge, he or she is not entitled to the benefit.
4. If the deductible amount is higher than the income tax of the respective year, the difference is lost. The shortfall cannot be carried forward to other periods.
5. The tax benefit of 40,000 Euro can only be used once for a property.
6. If the owner transfers the property within a three-year-period from the work being undertaken, neither he/she nor the new owner can use any unclaimed benefit.

There are other tax beneficial treatments for private owners who use their property as their residential home that cover:

• Special depreciations and other tax benefits for buildings in redevelopment areas and urban development zones
• Special depreciations and other tax benefits of listed buildings
• Installation of solar energy systems

In addition to that, owners who use the property for residential purposes can deduct 20% of services of builders and craftsmen from their income tax burden, but not more than € 1,200 per year. The deductibles are only for part of the fee for the work being carried out, but not for the materials used.

Autoren: Peter Scheller, Steuerberater, Master of International Taxation, Fachberater für Zölle und Verbrauchsteuern

Alexander Wangerowski, Steuerberater, www.aw-stb.de