For energy-efficient renovations of an owner-occupied home, there are two funding routes that rule each other out per measure: the tax credit under Section 35c of the German Income Tax Act (EStG) or a grant from the BAFA or the KfW. Whether you upgrade the insulation, fit new windows or replace the heating, you decide on one of the two routes for each individual measure.
The tax credit deducts 20 percent of the costs directly from your tax bill, so with a maximum of 200,000 euros in eligible spending that comes to up to 40,000 euros over three years. From our base in Wildau we carry out individual energy-efficiency measures in existing buildings, and we often see that Section 35c is the simpler route once your tax burden is high enough.
What Section 35c EStG actually deducts
Section 35c EStG applies to owner-occupied residential property that is more than ten years old. It funds 20 percent of the expenditure, spread over three years: 7 percent in the year the work is completed, 7 percent in the following year, 6 percent in the third year.
The ceiling is 40,000 euros per property. That corresponds to 200,000 euros of funded spending. With a grant, money lands in your account; with the tax credit, your income tax falls instead across three consecutive years.
The measure must be completed before 01/01/2030. It covers the same work as BAFA funding, for example insulating walls and the roof, replacing windows and exterior doors, or renewing the heating system.
Tax credit or grant: the decision per measure
You cannot fund the same block of costs twice. For each measure the rule is: either Section 35c or a grant from the BAFA or the KfW. Across several measures within one project you can mix them, so run the insulation through the tax credit and the heating through KfW 458.
The key practical difference is the process. With a BAFA grant, the application has to be in before work starts. With the tax credit there is no application procedure up front; you claim the costs later with your tax return. Anyone who has missed the window for the BAFA application still has an option through Section 35c.
On the grant route you have to attach a deferred condition to the contract, so that it only takes effect once the funding decision arrives. With the tax credit you commission the firm without that clause and without waiting for a decision. For many owners that is exactly why they choose the tax route.
Worked example: insulation for 40,000 euros
Suppose you insulate the facade of your owner-occupied home for 40,000 euros. This is how the three routes compare:
| BAFA without iSFP | BAFA with iSFP | Section 35c EStG | |
|---|---|---|---|
| Funding rate | 15 % | 20 % | 20 % |
| Eligible costs | up to 30,000 euros/year | up to 60,000 euros | up to 200,000 euros/property |
| Funding | 4,500 euros | 8,000 euros | 8,000 euros |
| Payout | grant after completion | grant after completion | over 3 years (2,800 / 2,800 / 2,400 euros) |
| Application before start | yes | yes | no |
Without an individual renovation roadmap (iSFP), the BAFA caps eligible costs at 30,000 euros per year, so with 40,000 euros of insulation 10,000 euros fall outside the scheme. With an iSFP the limit rises to 60,000 euros and the rate to 20 percent, which puts the BAFA level with the tax credit at 8,000 euros. How the iSFP works is covered in the article BAFA individual measures with an iSFP.
With the tax credit the 8,000 euros arrive in instalments: 2,800 euros in the first and second year, 2,400 euros in the third. That assumes your income tax in each of those years is high enough to use the deduction in full.
The 200,000 euro spending cap almost never bites on a single insulation job. It only becomes relevant once you run several large measures on the same property through the tax credit and the total across the years exceeds 200,000 euros.
When the tax credit is the better fit
- You missed the BAFA application before work started, so a grant is off the table.
- Your income tax over the next three years is high enough to deduct the full 20 percent.
- You want to start without a prior application procedure and commission the work at short notice.
- The spending is above the BAFA limit without an iSFP, so the full block of costs counts under the tax credit.
A low tax burden argues against the tax credit. Anyone paying little income tax will not use up the 40,000 euro ceiling, because the deduction only works up to your actual tax liability. In that case a grant that arrives as cash usually gives you more.
For the heating the maths look different. KfW 458 funds the replacement with a 30 percent base rate and up to 70 percent at the maximum, so for a single-family home up to 21,000 euros on eligible costs of 30,000 euros. Those rates sit far above the 20 percent of the tax credit, which is why a grant almost always wins for a new heating system. The details are in the article Heating funding KfW 458.
Which proof you need
For Section 35c you need a certificate from the contractor carrying out the work, on the official template. In it the firm confirms that the measure meets the technical minimum requirements, for example a U-value of no more than 0.95 W/(m²K) for new windows. You attach this certificate to your tax return, and the tax office pays nothing without it.
How we carry out the measure
Energy-efficiency measures in existing buildings are part of our daily work across the Berlin region. At the Berlin Workshops for People with Disabilities we built two extensions, fully gutted the existing structure and brought the facade up to the current energy standard. Whether it is insulation, windows or a facade, we issue the contractor certificate you need for the tax credit.
Which route gives you more depends on the measure, the spending and your tax burden. You will find an overview of grants and loans on our funding overview. In a free initial consultation we weigh the tax credit and the grant against each other for your project. Get in touch via our contact page or call +49 3375 95 09 70.
