Renovation in Germany: KfW Subsidy vs. §35c Tax Bonus

Home Renovation in Germany: Which Path Saves More?

You want to renovate your home — install a heat pump, replace windows, or improve insulation. Germany offers two major financial support paths: a KfW grant (direct subsidy) or the §35c tax bonus (tax reduction over 3 years). But which one is better for your situation?

The answer depends on the type of renovation, your income, and whether you can wait for the tax benefit. Most homeowners choose blindly — and leave thousands of euros on the table.

In short: KfW grants offer up to 70% subsidy for heat pumps (30% base + 20% speed bonus + 20% income bonus). The §35c tax bonus gives you 20% of costs as a tax reduction over 3 years (max €40,000). For most single big renovations, KfW is better. §35c shines when no KfW program exists or you renovated without prior application.

Option 1: KfW Subsidy (BEG Grants)

The KfW (Germany’s government development bank) offers grants through the Bundesförderung für effiziente Gebäude (BEG):

Heat Pump Example

Component	Subsidy Rate
Base subsidy	30%
Speed bonus (replace old heating before 2026)	+20%
Income bonus (household income <€40,000)	+20%
Maximum combined	70%

Calculation: Heat pump costs €25,000

• Base only (30%): €7,500 grant
• With speed bonus (50%): €12,500 grant
• With all bonuses (70%): €17,500 grant (you pay only €7,500)

Key Rules

• Must apply before starting the renovation
• Energy efficiency expert (Energieberater) required
• Grant is paid after completion and proof
• Maximum eligible costs: €30,000 per residential unit (€60,000 with individual renovation roadmap)

Option 2: §35c Tax Bonus

The §35c EStG tax reduction works differently:

• 20% of renovation costs are deducted directly from your tax bill
• Spread over 3 years: 7% in year 1, 7% in year 2, 6% in year 3
• Maximum eligible costs: €200,000 per property
• Maximum tax reduction: €40,000 over 3 years

Calculation: Same heat pump at €25,000

• Year 1: €25,000 × 7% = €1,750 tax reduction
• Year 2: €25,000 × 7% = €1,750 tax reduction
• Year 3: €25,000 × 6% = €1,500 tax reduction
• Total: €5,000 over 3 years

Key Rules

• No prior application needed — file with your tax return
• Building must be at least 10 years old
• Must be owner-occupied (not rental property)
• Certified contractor required (with official certificate)

Head-to-Head Comparison

Factor	KfW Grant	§35c Tax Bonus
Maximum benefit	Up to 70% of costs	20% of costs
Heat pump (€25,000)	€7,500 – €17,500	€5,000
When you get money	After completion (~2-4 months)	Over 3 tax returns
Application needed?	Yes, before starting work	No, file with tax return
Energy consultant?	Yes (mandatory)	No
Rental property?	Some programs yes	No, owner-occupied only
Can combine?	Not with §35c for same measure	Not with KfW for same measure

Winner for most cases: KfW — especially for heat pumps with bonus eligibility.

§35c wins when:

• No KfW program covers your specific measure
• You already started the renovation without KfW application
• You don’t qualify for KfW bonuses and prefer the simpler process

Calculate Automatically

Use our free Renovation Calculator to compare both paths for your specific renovation — including speed bonus, income bonus, and multi-year tax reduction breakdown.

Common Mistakes

• Not applying for KfW before starting — You must apply and receive approval before the contractor starts work. Retroactive applications are rejected.
• Trying to combine both — You cannot use KfW and §35c for the same measure. Choose one path.
• Missing the speed bonus — The 20% speed bonus requires replacing your old heating system before the deadline. Check current requirements.
• Forgetting the contractor certificate — For §35c, you need the official certificate from a certified contractor. Without it, the Finanzamt won’t accept the deduction.

How Restio Helps

Home renovations create long-term tax implications. Restio helps you keep track:

• Receipt scanning — capture contractor invoices and certificates with a photo
• Multi-year tracking — Restio tracks your §35c deduction over 3 years so you don’t miss any year
• AI tax expert — ask about deductible expenses for your property and get instant answers
• Handwerkerleistungen — beyond renovation programs, you can deduct up to €1,200/year for craftsman services (§35a)

Try Restio free for 14 days and manage your renovation deductions.

Conclusion

For most homeowners, the KfW grant is the better choice — especially for heat pumps where subsidies can reach 70% of costs. The §35c tax bonus is ideal when no KfW program fits or you’ve already started renovating. At €25,000 for a heat pump, the difference can be €2,500 to €12,500 — well worth the comparison. Use our calculator to run your specific numbers.