Tax credit for a new heating system: section 35c or the grant?
For the same new heating system you get either the KfW grant or the income tax reduction, never both. Which pays more depends on cost, the old system and your German tax bill.
Worked through by Radif Partners · Editorial policy · How we calculate
Grant or tax credit?
Better: grant
€8,400
| Grant (gas under 20 years) | €8,400 |
| Tax credit over three years | €6,000 |
The tax credit only helps if you pay at least that much income tax.
Under section 35c of the German Income Tax Act, income tax is reduced for energy-saving work on a home you own and live in, including replacing the heating system: in the year the work is completed and the following year by 7 % of the cost each, capped at €14,000, and in the third year by 6 %, capped at €12,000. Each property can receive €40,000 in total. The building must be more than 10 years old, a registered firm must do and certify the work, and it must be completed before 1 January 2030. For the same work, the KfW grant rules the credit out. Over three years the credit is worth 20 % of the cost; the grant pays at least 30 % of up to €28,000. Example: a €30,000 heat pump replaces a 12-year-old gas boiler, taxable income is €90,000. The grant is €8,400, the credit €6,000. At a cost of €60,000 it flips: €12,000 credit against a €8,400 grant.
What section 35c says
Since 2020, owners can claim energy-saving work on the home they live in through their tax return (section 35c Income Tax Act). Eight types of measure qualify, among them replacing the heating system and optimising an existing system more than two years old. The reduction is taken off the tax itself, not off income. It is spread over three calendar years: the year the work is finished and the two after.
| Year | Rate | At most |
|---|---|---|
| Year of completion | 7 % | €14,000 |
| Following year | 7 % | €14,000 |
| Third year | 6 % | €12,000 |
| Total | 20 % | €40,000 |
The maximum is reached at €200,000 of costs. It applies per property and to all measures together, not per measure. If several people own the house, it is still granted only once. Fees for an energy adviser approved by BAFA who plans or supervises the work even reduce the tax by 50 %.
The conditions
The building must be in the EU or the European Economic Area, belong to you and be used exclusively as your own home in each of the three years. It must be more than 10 years old when the work begins, counted from the start of construction. A registered firm must carry out the work and certify on the official form that the minimum requirements are met. The invoice must list the measure, the labour and the address, be issued in German, and be paid by transfer to the firm’s account.
The credit is excluded if the costs have already been deducted as work expenses, business expenses, special expenses or extraordinary burdens, if the tradesman credit under section 35a is used, and if subsidised loans or tax-free grants are taken for the measure. Landlords cannot use section 35c; for them the KfW basic grant remains (grants for landlords). The credit only reduces German income tax, so it is of no use if you are not taxed in Germany.
Grant or tax credit: the comparison
The grant pays at least 30 % on eligible costs of up to €28,000, plus the climate speed bonus and the income bonus for owner-occupiers. The credit pays 20 % on the full cost up to €200,000. So the grant nearly always wins at normal costs, and the credit only for expensive systems and high incomes without bonuses.
| Case | Cost | Grant | Tax credit | Better |
|---|---|---|---|---|
| Gas boiler 12 years, income €90,000 | €30,000 | €8,400 | €6,000 | grant |
| Ground source heat pump, gas boiler 12 years, income €120,000 | €60,000 | €8,400 | €12,000 | credit |
| Oil boiler, income €90,000 | €30,000 | €12,880 | €6,000 | grant |
| Oil boiler, income €45,000 | €30,000 | €15,680 | €6,000 | grant |
Without bonuses the threshold is about €42,000 of costs, with the climate bonus about €64,400. In the second case you would also need enough tax in each of the three years: €4,200, €4,200 and €3,600. The grant, by contrast, arrives in one payment some months after installation and does not depend on your tax bill. The grant calculator shows the grant for your case.
Grant for your house
Grant
€15,680
| Grant rate | 56 % |
| Eligible costs | €28,000 |
| Your share | €16,320 |
Applying now, heat pump, guideline of 17 Aug 2026.
Both on the same house
For the same measure the two routes exclude each other. In the KfW application you undertake not to claim tax relief for it (BEG EM guideline, no. 8.6). For different measures on the same house you may combine them. If you replace the heating with the grant and renew the windows in the same year, the windows can take the tax credit. Information sheet 458 repeats this rule. Take care with the top-up loan: if it also finances the windows, that is a subsidised loan for that measure, and section 35c then rules the credit out.
For optimising an existing system there is a BAFA grant of 15 % alongside section 35c (heating optimisation). Both rates are lower here, and the 20 % credit over three years is usually the larger sum if you pay enough tax.
Deadlines and process
Work qualifies if it started after 31 December 2019 and is completed before 1 January 2030. Unlike the KfW grant, no prior application is needed. You claim the credit in your tax return for the year of completion, with the firm’s certificate, and again in the two following years. If you are unsure which route pays more, you can keep the choice open until the KfW application, because the grant must be applied for before work starts and the credit need not be. The whole grant programme is described under KfW 458.