Energy-saving renovation: tax reduction only after payment

New Federal Fiscal Court ruling: Tax relief for new windows, modern heating, or thermal insulation is only available once the work has been completed and the tradesman's invoice has been paid in full. There is an alternative for installment payments.

This article is part of the special topic Tax bonus for tradesmen's invoices: What you should know

Whether it's thermal insulation, new windows, or a new boiler: Private individuals who want to make their home or apartment more energy efficient can deduct 20 percent of the costs, spread over three years, from their taxes. The maximum amount of the subsidy is 40.000 euros per residential property. Unlike the Tax bonus on craft services even the complete costs, i.e. Materials and wages, credited. 

However, the tax reduction can only be granted once the work has been completed and the invoice amount completely was transferred to the account of the craft business, the Federal Finance Court (BFH) clarified in a recent ruling.

The specific case involved a married couple who had a new gas condensing boiler for heating The cost of delivery and installation was €8.118,10. This included the cost of assembly and specialist labor.

Since March 2021, the plaintiffs have paid monthly installments of 200 euros on the invoice amount to the installer, a total of €2.000 in 2021. When assessing income tax for 2021, the tax office rejected the tax reduction for energy-saving measures. This would only be considered upon payment of the final installment in 2024, i.e., only after the customer has received the final invoice (not an invoice for partial services) and paid the entire invoice amount into the service provider's account. The tax court and the Federal Fiscal Court agreed with this view.

You might also be interested in:

Operations management

Incorrect invoice: The customer can refuse payment.

Operations management

Recent ruling strengthens the rights of subcontractors

Operations management

Funeral services cannot be divided.

The invoice amount must be received in full on the tradesman’s account

According to the ruling of the Federal Fiscal Court, the tax reduction for energy-saving measures can be Section 35c of the Income Tax Act (EStG) may not be claimed until the taxpayer has paid the amount shown in the invoice for the eligible measure in full into the service provider's account. 

The prerequisite for the tax reduction is that the taxpayer has received an invoice in German with certain information. In addition, the law expressly requires that payment be made to the account of the service provider. The invoice must be paid in full, the judges stated. Therefore, partial payments made in 2021 cannot be taken into account.

The Federal Fiscal Court points out that in the year in dispute, 2021, Tax reduction according to Section 35a Paragraph 3 EStG for craftsmen's services comes into consideration. However, only labor costs, not material costs, are eligible for tax relief. And if the tax reduction for tradesmen's services is claimed, then funding based on Section 35c of the Income Tax Act is excluded.

Source: Federal Fiscal Court

The 20 percent can be spread over three years

The 20 percent can be spread over three years: in the year of the renovation and the year after, it is seven percent. In the third year, it is six percent. The state subsidizes a maximum of 200.000 euros of the renovation costs.  

• In the first two years you can get seven percent each, but a maximum of EUR 14.000 and
• in the third year six percent and a maximum 12.000 euros of expenses claim
• in total, EUR 40.000

The tax incentive applies to energy-saving renovations that began on or after January 1, 2020. By law, the measures must be completed by the end of 2029.

Who is allowed to carry out the energy-saving measures?

The Federal Ministry for Economic Affairs and Energy explains on the website energiewechsel.dewho is allowed to carry out the measures: "The measures must be carried out by a specialist company. Specialist companies are Master craftsmen and craft businesses with a holder of comparable qualifications who are active in the field of building renovation. Specifically, these are businesses in the following fields of activity, which require registration in the Register of Crafts and Trades and therefore generally a master craftsman title (trades requiring licensing according to Section 1 of the Crafts Code):

• Bricklaying and concrete construction work
• Plastering work
• Painting and varnishing work
• Carpentry, joinery and joinery work
• Heat, cold and stone carving work
• Well construction work
• Roofing work
• Plumbing work
• glasswork
• Plumbing and heating work
• Refrigeration system construction
• Electrical engineering and installation
• Metal construction
• Stove and air heating construction
• Roller shutter and sun protection technology
• Chimney sweeping work
• Tiling, slab and mosaic work
• Concrete block and terrazzo production.

A special rule applies to windows: Specialist companies are all companies that specialize in window installation and are commercially active in this field.

The specific measure implemented must belong to the trade of the executing specialist company counting. For example, the installation of an exterior door by a master chimney sweep is not recognized."

DHB now also digital!Simply click here and register for the digital German Crafts Journal (DHB)!