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Energy retrofit tax credit in Germany: § 35c EStG

Last updated: 5 September 2026 · Reading time approx. 9 minutes

If you insulate, reglaze or re-heat the home you live in yourself, part of the bill comes back off your tax liability directly — not as a deduction from income, but as a reduction of the tax itself. In total 20% of the expenditure, spread over three years, capped at €40,000 per property. The rule sits in § 35c of the German Income Tax Act (EStG) and has a hard edge: it applies to owner-occupied buildings only, and the relief expires unless the work is completed before 1 January 2030. What "completed" means was defined more narrowly by the Federal Fiscal Court in 2024 than most owners assume.

What § 35c EStG actually pays

Under § 35c Abs. 1 Satz 1 EStG the credit is spread across three assessment periods, starting with the year in which the measure is completed:

Assessment periodReduction of income tax dueCap
Year of completion7% of the expenditure€14,000
First following year7% of the expenditure€14,000
Second following year6% of the expenditure€12,000
Total20% of the expenditure€40,000 per eligible property

The difference from depreciation is the whole point: deductible expenses reduce taxable income, § 35c EStG reduces the assessed tax. Every eligible euro therefore works in full, whatever your marginal rate. The fees of an energy consultant carry their own rate — under § 35c Abs. 1 Satz 4 EStG the tax is reduced by 50% of those costs, counted against the same per-property cap.

Five conditions that trip people up

  1. The building is more than ten years old. Under § 35c Abs. 1 Satz 2 EStG what counts is the start of construction, not the purchase date. Buy a house built in 2016 and you still have to wait.
  2. You live in it yourself. § 35c Abs. 2 EStG requires exclusive owner-occupation in the calendar year concerned. Under Abs. 5 the provision applies accordingly to condominium flats and to parts of a building that are independent assets.
  3. A qualified contractor does the work and certifies it. Under § 35c Abs. 1 Satz 7 EStG the certificate must follow the officially prescribed template and confirm that the minimum requirements are met. Which trades count as a qualified contractor is listed exhaustively in § 2 ESanMV — from roofers and heating engineers to electrical installers.
  4. The invoice is in German and names the property. § 35c Abs. 4 Nr. 1 EStG requires the invoice to state the eligible measure, the contractor's labour and the address of the property.
  5. You pay into the contractor's bank account. § 35c Abs. 4 Nr. 2 EStG requires payment to the account of the service provider. Cash rules the relief out — even if everything else is in order.

Part of the house let, or a home office in it? That does not disqualify you in principle. Under the German Finance Ministry circular of 21 August 2025 (para. 14) the expenditure must, however, be reduced by the share attributable to the part not occupied by you — normally in proportion to floor areas. The per-property cap of €40,000 is not reduced. Where parts are let only temporarily and the income does not exceed €520 in the assessment period, the tax authorities waive the apportionment altogether (para. 16).

Which measures qualify — and which do not

§ 35c Abs. 1 Satz 3 EStG lists eight individual measures: thermal insulation of walls, of roof surfaces and of storey ceilings; replacement of windows or exterior doors; replacement or installation of a ventilation system; replacement of the heating system; installation of digital systems for optimising energy use; and optimisation of existing heating systems that are more than two years old. Each measure must additionally meet the technical minimum requirements of the corresponding annex to the ESanMV, the ordinance § 1 of which points to annexes 1 to 8.

For heating, the list has narrowed considerably in the version applying to work started on or after 1 January 2025. Annex 6 to the ESanMV lists solar collector systems, biomass boilers, electrically driven heat pumps, fuel cells, bivalent systems and connections to a building or district heat network as eligible heat generators; number 6.6 of the annex has been deleted. Two points are worth checking before you sign the contract:

Worked example: €60,000 for roof insulation and new windows

An owner-occupied detached house built in 1988 is insulated and reglazed in 2026. The final invoice of €60,000 is transferred in full in December 2026.

YearCalculationTax credit
20267% of €60,000€4,200
20277% of €60,000€4,200
20286% of €60,000€3,600
Total20% of €60,000€12,000

The trap for pensioners and low-tax years: if the income tax due in one of the three years is lower than the credit for that year, the difference is lost. According to the ministry circular (para. 26) this excess can be carried neither to other assessment periods nor forwards or backwards within the three-year relief window. If you expect little tax, compare the grant route before the contract is signed.

§ 35c, a grant, or § 35a — the choice is made measure by measure

§ 35c Abs. 3 EStG rules the credit out where, for the same measure, relief under § 10f EStG or § 35a EStG is claimed, or where the measure is publicly funded through subsidised loans or tax-free grants. What matters, according to the ministry circular (para. 70), is the individual measure: fund the heating through a grant programme and pay for the windows yourself, and the windows still qualify under § 35c EStG. Conversely, the choice you make binds you for the whole relief period — switching between the funding routes later is not possible (para. 71).

§ 35c EStG§ 35a Abs. 3 EStG
Basismaterials and labourlabour costs only
Rate20%, spread over three years20% in the year of payment
Cap€40,000 per property€1,200 per year
Age of buildingmore than ten yearsno age limit
Evidencecertificate on the official templateinvoice and non-cash payment

§ 35a Abs. 3 EStG is therefore the safety net: if § 35c EStG fails on the certificate, on the age of the building or on a system that is not eligible, the labour share of the invoice still attracts the tradespeople's credit of 20%, capped at €1,200 a year. Under § 35a Abs. 5 Satz 2 EStG it expressly covers labour costs only — materials stay outside.

§ 35c EStG does not apply to let property

The provision presupposes owner-occupation; a let house is not an eligible property. That is not a disadvantage, just a different route: for income from letting, the same costs are deductible expenses under § 9 Abs. 1 Satz 1 EStG and reduce the tax base — often in full in the year of payment. Three questions decide how fast the money works:

What the courts have decided

There is so far one decision of the Federal Fiscal Court (Bundesfinanzhof, BFH) on § 35c EStG — and it concerns precisely the question of when the relief starts at all. The second decision explains what "payment to the account" requires.

BFH, judgment of 13 August 2024 – IX R 31/23

The headnote is short and expensive: an energy measure within the meaning of § 35c EStG "is not completed upon its construction being finished, but only upon full payment of the invoice amount into the account of the service provider". The claimants had a boiler installed and repaid the invoice in monthly instalments — so the relief did not begin in the year of installation. An instalment agreement does not replace payment; a bank loan from which the amount is transferred does. The decision is published in the Federal Tax Gazette (BStBl II), so the tax authorities apply it generally and have adopted it in their administrative circular. For owners: transfer the invoice in full in the year the work is completed — and if the cash is short, take a loan rather than agreeing instalments with the contractor.

BFH, order of 9 June 2022 – VI R 23/20

On the identically worded requirement in § 35a EStG, the VI. Senate held that the credit applies only "if the invoice amount is credited to an account of the provider held with a credit institution"; settlement via a shareholder current account is not enough. The point of the rule is the documentation of the payment by a bank. The practical consequence for § 35c EStG too: set-offs, netting against your own services or a cash payment against a receipt are not a valid payment route, however plausible they may look in the individual case.

Frequently asked questions

By when does the work have to be finished?

§ 52 Abs. 35a EStG limits the relief to measures begun after 31 December 2019 and completed before 1 January 2030. For work requiring a permit, the start is the date of the building application; otherwise it is the start of construction. And "completed" includes full payment under the BFH judgment — for a measure at the end of 2029 that will be tight.

Can I claim the credit for more than one house?

Yes. The cap of €40,000 applies per eligible property and, according to the ministry circular (para. 32), may be claimed for several owner-occupied properties simultaneously or one after the other — for instance for your home and a holiday house you use yourself.

What if the property has several owners?

Under § 35c Abs. 6 EStG the relief can be claimed only once in total for the property. The underlying expenditure may be assessed separately and uniformly; for spouses the authorities regard that as unnecessary where the split is clear.

Do ancillary works such as scaffolding or removing render count?

Yes, insofar as they are connected with an eligible measure. § 1 ESanMV expressly includes the cost of proper installation, commissioning, necessary ancillary works and directly connected materials; the ministry circular adds a guidance list by trade. On its own — without the energy measure — such ancillary work is not eligible.

Do I have to file the certificate with my tax return?

The contractor's certificate on the official template is a substantive condition — without it there is no relief. Request it together with the final invoice rather than in the spring afterwards, when the fitter has long since filed the job away.

Renovation costs kept per property

RenoDiary keeps invoices, certificates and measures together per property — so that in the third year of relief you can still find what was paid in the first.

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Sources

This article offers general orientation and does not replace individual tax or legal advice within the meaning of § 3 StBerG. Whether a specific measure meets the minimum requirements of the ESanMV, and in which year it takes effect, depends on the individual case; the amounts in the tables are worked examples.