(2023)
Are extensions to living space also eligible for tax relief?
Expenditure on tradesmen's services in owner-occupied property can be deducted directly from the tax liability at 20%, up to a maximum of 1.200 Euro per year. This includes not only regular renovation work but also one-off maintenance and modernisation measures - and not just in the home, but also on the property (§ 35a para. 3 EStG).
Not eligible are tradesmen's activities as part of a new building project: Until 2014, new building projects were defined as "all measures related to the creation or extension of usable or living space" (BMF letter dated 15.2.2010, BStBl. 2010 I p. 140, para. 20). This includes work for a new build, extension, conversion or addition, as these always involve an extension or creation of usable or living space.
Since 2014, the term "new building project" has been redefined: Since then, a new building project includes "all work related to the construction of a household until its completion" (BMF letter dated 10.1.2014, BStBl. 2014 I p. 75, para. 21).
What does "completion" mean? A building is completed when the main construction work is finished and the building is erected to the extent that moving into the flats is reasonable or the building can be used for its intended purpose in all essential areas. All work thereafter is eligible. This also benefits builders who move into their new build first and have work carried out afterwards.
What does "construction of a household" mean? All work in an existing household is now eligible. It no longer matters if new living or usable space is created. If the building measures significantly improve the utility value of the property, this does not affect the tax benefit. The new definition of "new building project" applies retroactively to all open tax cases since 2006 (BMF letter dated 10.1.2014, BStBl. 2014 I p. 75, para. 57).
Is "construction expenditure" also eligible? When assessing eligible work, it does not matter whether it is classified for tax purposes as maintenance expenditure or construction expenditure. The latter applies when something new, previously non-existent, is created. For example, the labour costs for the subsequent installation of a tiled stove and chimney, the installation of a sun awning, the initial landscaping of a garden, planting a hedge, or building a boundary wall are eligible.
Unlike before 2013, since 2014 building measures that extend the living or usable space are also eligible - provided a household exists.
Examples of eligible work include:
- Extension of a conservatory: Rejected before 2014 because the unheated conservatory is included in the calculation of living space at 50% and the heated conservatory at 100% (FG Rheinland-Pfalz dated 18.10.2012, 4 K 1933/12).
- Installation of a dormer: Rejected before 2014 because this increases the clear height to over 2 m, thus enlarging the corresponding floor area by 50%. A living space extension of just 2.40 sqm was detrimental (FG Berlin-Brandenburg dated 11.12.2012, 4 K 4361/08).
- Conversion of the attic or basement.
- Installation of a terrace roof.
- Installation of a prefabricated garage.
Note: The Berlin-Brandenburg Finance Court ruled against homeowners, stating that tradesmen's services are still considered part of the new build if they were carried out after moving in but were already listed in the building contract: Examples include exterior plastering and painting, laying turf, and erecting a fence (judgment dated 7.11.2017, 6 K 6199/16).
Currently, the Federal Fiscal Court has denied the tax benefit under § 35a para. 3 EStG for structural calculations by a structural engineer. This applies even if the structural calculation was necessary for carrying out a tradesman's service (BFH judgment dated 4.11.2021, VI R 29/19).
From 2022, maintenance costs for small photovoltaic systems can be claimed under § 35a EStG, even if they are no longer considered business expenses. The tax authorities have published a simplification rule allowing this (BMF letter dated 17.7.2023, IV C 6 - S 2121/23/10001 :001).
In principle, costs related to photovoltaic systems are business expenses, but in this case, they are not considered. Therefore, a tax relief under § 35a EStG would normally not be possible. However, the BMF now allows this, provided proper invoices are available and payments were made cashlessly, i.e. by transfer to the service provider's or tradesman's account. The eligible costs include the wage components in the tradesmen's invoices as well as machine and travel costs (each including VAT).
