Investment in real estate now faces a potential hazard due to this tax loophole
In a recent ruling, the Federal Fiscal Court (BFH) in Germany has emphasised the importance of fully paying the invoice amount for energy-saving measures before claiming the associated tax deduction. This decision could potentially impact homeowners who have made partial payments towards the installation of energy-efficient improvements in their homes.
The BFH's ruling does not specify the exact conditions for maintaining tax deductions after modernizing energy efficiency in a home. However, based on general knowledge and typical practices in Germany, the key points for claiming tax deductions on energy-saving home improvements often include:
- Qualified Home Improvements: Eligible measures usually include insulation, new windows, energy-efficient heating systems like heat pumps, solar thermal installations, and other defined retrofit measures aimed at energy conservation.
- Professional Certification: The work generally must be certified by an energy expert (Energieberater) who confirms compliance with technical standards like the German Energy Saving Ordinance (EnEV) or the newer Buildings Energy Act (GEG).
- Invoice Requirements: Tax deductions require detailed invoices for labor and material costs. Often, only the labor costs are deductible, not the full material price.
- Claim Timing and Limits: Taxpayers usually deduct a fixed percentage of costs within set annual or multi-year limits. The deduction might apply as a credit against income tax.
Homeowners who do not meet the specific condition for maintaining tax deductions could potentially lose their tax benefits. It is recommended to consult official resources such as the Federal Ministry of Finance (Bundesfinanzministerium) for the latest guidelines, recent legal commentaries, tax advisor summaries, or German energy consulting bodies and tax consultancy firms specialising in energy-efficient home improvements.
This tax deduction is regulated in paragraph 35c of the Income Tax Act. The German traffic light government also promotes energy-saving measures in residential buildings. Homeowners who are planning to modernize their residential properties should consider this ruling when planning their payment schedule to ensure they are eligible for the tax deduction in the intended tax year.
Energy-saving measures, such as the installation of a modern heating boiler, can result in significant tax deductions for homeowners. However, it's crucial to adhere to the BFH's ruling and complete the payment of the invoice amount to the service provider before claiming the deduction.
It's worth noting that many German residential buildings have poor to bad energy efficiency, with sixty percent of properties built before 1979. Only a quarter of residential buildings in Germany are equipped with sustainable energy sources, and only six percent currently have a heat pump installed. This underscores the importance of energy-efficient home improvements and the potential benefits they can bring, both in terms of reducing energy costs and contributing to Germany's climate goals.
This news article serves as an overview of the BFH's ruling and its potential impact on homeowners planning energy-efficient improvements. For more specific details about the court ruling or the exact updated requirements in Germany, it is advisable to consult official resources or professional advisors.
The German Federal Ministry of Finance might highlight the specific conditions for maintaining tax deductions after modernizing a home's energy efficiency, especially considering the BFH's ruling. Homeowners looking to invest in real-estate, focusing on energy-saving home improvements, should particularly pay attention to the invoice requirements, as completing the payment of the invoice amount to the service provider before claiming the deduction may be essential.
