What is the investment tax credit (ITC) for photovoltaic systems?
The investment deduction under Section 7g of the German Income Tax Act (EStG) is one of the most powerful—and at the same time most frequently misunderstood—tools in German tax law, especially when it comes to photovoltaics. This article explains what the investment deduction really is (and what it is not), who can use it, and why it plays a special role in the context of PV systems.
As of May 2026.
This article is intended solely for general informational purposes and does not constitute investment, tax, or legal advice. For advice specific to your individual situation, please consult a licensed tax advisor. All information is provided without warranty.
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The investment deduction (IAB) is a tax incentive under Section 7g of the German Income Tax Act (EStG) that allows business owners and self-employed professionals to deduct up to 50% of the estimated acquisition costs of a planned investment from their taxable income—before they have even made the purchase. For photovoltaic systems, it can be used without legal restrictions as soon as the system is designated for business use as a movable asset and does not fall under the tax exemption of Section 3 No. 72 of the German Income Tax Act (EStG)—typically for commercial systems exceeding 30 kWp per residential or commercial unit. Requirements: active operation with profit-generating income, profit limit of €200,000 in the deduction year, at least 90% business use, investment within three years. If you are a business planning your own PV system or an investor who wants to know how the IAB specifically generates €32,550 in tax savings on a €100,000 investment, you can find the detailed mechanics in our main tax article.
Table of Contents
What is the investment deduction (IAB) under Section 7g of the Income Tax Act (EStG)?
IAB, Special Depreciation, and Straight-Line Depreciation: A Comparison
Who is eligible to use the IAB under Section 7g(1) of the Income Tax Act?
Who, specifically, is the IAB suitable for in the field of photovoltaics?
Three-year grace period before installing a photovoltaic system
What is the investment deduction (IAB) under Section 7g of the Income Tax Act (EStG)?
The investment deduction is an off-balance-sheet reduction in taxable income, as provided for in Section 7g of the German Income Tax Act (EStG), of up to 50% of the estimated acquisition or production costs of a planned investment. It takes effect prior to the purchase and is therefore not a depreciation instrument in the technical sense, but rather an advance deferral of tax expenses.
The legal basis for the investment deduction for photovoltaic systems and other business assets is found in § 7g(1) of the Income Tax Act (EStG). The text of the law itself states in paragraph 1, sentence 1—slightly abridged—as follows: Taxpayers may deduct up to 50 percent of the expected acquisition or production costs for the future acquisition or production of depreciable movable fixed assets from their taxable income.¹ Thus, any company considering the purchase of a photovoltaic system in the near future can save on taxes by establishing the IAB as early as the current fiscal year—before a single module has even been installed.
Three Key Features of Education at the IAB
Three points are key here:
"Future" purchase: The IAB is established before the asset exists. You plan the investment—and reduce your taxable income right now.
“Up to 50 percent”: This deduction is a maximum limit, not a mandatory amount. Taxpayers may also set up the IAB at a rate of only 30% or 20% under Section 7g of the Income Tax Act (EStG)—depending on how much of their tax burden they wish to defer in the year the IAB is established.
“Deduction reducing profit”: The deduction is recorded off-balance-sheet as an adjusting entry—it is therefore not a straight-line depreciation within the meaning of § 7 of the German Income Tax Act (EStG), which reflects an actual loss of value.
From the previous version to the current version of § 7g of the Income Tax Act
The IAB was introduced in 2008 by the Corporate Tax Reform Act, thereby replacing the older “accumulated depreciation” system, which had previously functioned as a balance sheet reserve. Since then, Section 7g of the Income Tax Act (EStG) has been reformed several times: With the 2020 Annual Tax Act (JStG 2020), the advance deduction rate was raised from 40% to 50% and the profit threshold was uniformly set at 200,000 euros. The Growth Opportunities Act of 2024 increased the separate special depreciation rate in Section 7g(5) of the Income Tax Act from 20% to 40%—but left the IAB itself (paragraphs 1–4) unchanged.² In the wake of the energy transition and the massive expansion of renewable energies, this instrument has gained significant importance for commercial photovoltaic investments and specific PV projects—even a large-scale photovoltaic investment covering several hectares of open land falls within the scope of Section 7g of the German Income Tax Act (EStG).
IAB, Special Depreciation, and Straight-Line Depreciation: A Comparison
The IAB is not a depreciation method, but rather an upfront deduction. It applies before the asset even exists. Special depreciation, declining-balance depreciation, and straight-line depreciation, on the other hand, apply only after the asset is acquired, over its useful life.
The most common misconception is that the IAB is a form of “accelerated depreciation.” While this makes sense linguistically, it is legally incorrect. Anyone who wants to clearly distinguish the various tax instruments related to a photovoltaic system must understand four key terms: IAB, special depreciation, declining-balance depreciation, and straight-line depreciation. A look at the key differences makes it clear why the IAB occupies a special position:
| Instrument | legal norm | Effect | Date and time |
|---|---|---|---|
| IAB | § 7g, paras. 1–4 of the Income Tax Act | Off-balance-sheet write-down of up to 50% of the estimated acquisition cost | before purchasing |
| Special Depreciation under Section 7g | § 7g(5) of the Income Tax Act | Additional depreciation of up to 40% (effective 2024) | in the year of acquisition and the following 4 years |
| Declining-balance depreciation | § 7(2) of the Income Tax Act | Three times the straight-line depreciation rate, capped at 30%; for PV (20-year useful life), effectively a maximum of 15% per year of the residual value | over the useful life (for fiscal year July 1, 2025–December 31, 2027) |
| Straight-line depreciation | § 7(1) of the Income Tax Act | Even distribution over the useful life | from the date of purchase (typical annual depreciation rate of 5%) |
| Conceptual overview. For specific examples of tax savings and how the various strategies work together, see the main article on taxes. | |||
The terminology was chosen deliberately: “investment deduction”—not “investment depreciation.” In 2008, the legislature wanted to emphasize that this is purely an off-balance-sheet deduction, not the recognition of an impairment on the balance sheet. The terms “advance depreciation” or “accelerated depreciation” are therefore common in everyday language but legally imprecise.
Special depreciation under § 7g(5) of the Income Tax Act
The special depreciation allowance is the natural follow-up measure to the IAB: Once the photovoltaic system has been purchased, businesses may deduct up to an additional 40% of the tax base as a special depreciation allowance within the year of purchase and the four subsequent years—distributed at their discretion. Important: The €200,000 profit limit and the 90% utilization rate apply to Section 7g(5) just as they do to the advance deduction under Section 7g(1).
Straight-line depreciation and normal useful life
Straight-line depreciation (Section 7(1) of the German Income Tax Act) constitutes the standard depreciation, which is applied in addition to the initial accelerated depreciation (IAB) and special depreciation. For photovoltaic systems, the official depreciation table assumes a standard useful life of 20 years—which corresponds to a 5% straight-line depreciation rate per year. Only the combination of the upfront deduction, special depreciation, and straight-line depreciation fully leverages the tax benefits of Section 7g of the Income Tax Act (EStG) for photovoltaic systems.
In practice, when dealing with photovoltaic systems, tax advisors regularly combine the IAB with the special depreciation under § 7g(5) of the German Income Tax Act (EStG) and straight-line depreciation over the standard useful life of 20 years—the ability to use all three instruments in parallel is what makes the leverage provided by § 7g EStG so attractive for photovoltaic systems. Our main tax article illustrates how the individual steps interlock using a fully calculated practical example.
Who is eligible to use the IAB under Section 7g(1) of the Income Tax Act?
All active businesses with profit-generating income—from sole proprietors and limited liability companies (GmbHs) to freelancers—are eligible to use the IAB, provided their profit for the tax year does not exceed €200,000 and at least 90% of the planned asset is used for business purposes. Private individuals without a business are not eligible.
The scope of authorized use is broad.³ The following are permitted:
Sole proprietor (business or agriculture and forestry)
Partnerships (OHG, KG, GbR, GmbH & Co. KG)
Corporations (GmbH, UG, AG)
Self-employed individuals under Section 18 of the German Income Tax Act (doctors, lawyers, architects, IT consultants, tax advisors)
Farmers and foresters under § 13 of the Income Tax Act
What matters is not the legal form, but rather that the entity is an active business engaged in economic activity and generates income from profits. Pure capital investments (Section 20 of the Income Tax Act) or rental income from private assets (Section 21 of the Income Tax Act) do not qualify for the IAB.
Three strict criteria must be met simultaneously:
First: the €200,000 profit threshold. Profit in the fiscal year of the deduction may not exceed €200,000—before taking the IAB into account. Since the 2020 Tax Amendment Act (JStG 2020), this has applied uniformly to all types of income, regardless of whether the business uses a balance sheet or a cash basis accounting method (EÜR).
Second: the 90% usage rate. The planned asset must be used “exclusively or almost exclusively”—that is, at least 90%—for business purposes. For a photovoltaic system, this means that at least 90% of the electricity generated must be fed into the grid or sold elsewhere, i.e., used for commercial purposes. A high level of private self-consumption can push the figure below the threshold.
Third: the type of income and the business connection. The system must be allocated to business assets. This goes without saying for a rooftop system on a commercial building; however, for a system on a self-employed person’s private home that is incorporated into their self-employed business, careful structuring is required. The size of the tax savings in each individual case depends on the personal tax rate—the tax benefits from the IAB for photovoltaics are proportional to the marginal tax rate, which is why high earners with active businesses in particular can claim significant amounts for tax purposes.
IAB and Photovoltaics: The Unique Legal Situation
When it comes to photovoltaic systems, the IAB overlooks a second law that plays a key role in determining its fate: Section 3(72) of the Income Tax Act (EStG). If this tax exemption applies—typically for systems up to 30 kWp per residential or commercial unit—there is no profit from which the IAB could be deducted. The IAB PV only comes into its own with larger, commercial systems.
The photovoltaic industry has had its own tax regime since 2023. The Annual Tax Act of 2022 introduced a full income tax exemption for smaller systems under Section 3(72) of the Income Tax Act (EStG)—income and withdrawals from these systems are tax-exempt, and the operation no longer generates a profit. With the Annual Tax Act of 2024, the threshold was standardized as of January 1, 2025, to 30 kWp per residential or commercial unit, with a total exemption limit of 100 kWp per taxpayer.⁴ ⁵
This results in a clear two-step process:
Systems exceeding 30 kWp per unit (or exceeding 100 kWp in total): Section 3(72) of the Income Tax Act (EStG) does not apply. The income is taxable, a profit is calculated—the IAB can be used as usual. This is the typical scenario for commercial rooftop systems, ground-mounted solar parks, and agri-PV projects.
Systems up to and including 30 kWp: Section 3(72) of the Income Tax Act (EStG) applies. The system does not generate taxable income—and therefore does not generate any profit from which the IAB could be deducted. In this case, the IAB is legally controversial.
The Federal Fiscal Court (BFH) is currently issuing rulings on precisely this issue. In Case III B 24/24, the BFH, in a decision dated October 15, 2024, expressed serious doubts regarding the blanket reversal of prior IAB for photovoltaic systems that are now tax-exempt and granted a stay of enforcement.⁶ The main proceedings in case BFH III R 39/25 (lower court: Hessian Fiscal Court, judgment of October 22, 2025 – 10 K 162/24) are pending as of May 2026—a decision is expected no earlier than mid-2026.⁷
In practice, this means that investors in commercial photovoltaic systems exceeding 30 kWp, or companies installing systems for their own operations, can rely on the IAB with legal certainty. Current case law tends to address borderline cases involving residential PV systems. Especially when investing in a commercial-scale photovoltaic system—ranging from a single industrial roof system to a multi-part solar park—the investment deduction is thus a key component for investors and companies seeking to structure their decentralized energy supply in a tax-efficient manner.
Which photovoltaic systems are IAB-compatible
Specifically, which PV investments and photovoltaic systems does the IAB cover:
Roof-mounted systems over 30 kWp (commercial, on industrial building roofs, office buildings, logistics centers)
Ground-mounted solar farms and agri-PV
Battery storage as a standalone auxiliary system for PV
Inverters as independently usable assets when structured separately
In-roof systems, which are considered part of the building structure, are no longer classified as movable assets—they are depreciated under the building depreciation schedule and are not eligible for the IAB. Therefore, anyone evaluating their investment options should discuss the type of system with their tax advisor early on.
IAB in Direct Investments in Photovoltaics
Commercial photovoltaic direct investments represent a special case—such as inverter revenue-sharing models, in which an investor acquires beneficial ownership of a clearly defined component of the system. Such structures may be eligible for IAB treatment if the acquired asset is clearly defined under civil law as an independent movable asset with its own useful life and ≥ 90% operational use. The investor’s tax advisor conducts the case-by-case assessment.
Who, specifically, is the IAB suitable for in the field of photovoltaics?
Two groups typically benefit from the IAB in the photovoltaic sector: companies and self-employed individuals planning to install their own PV systems on their premises—and investors who participate in direct commercial photovoltaic investments, such as income-sharing arrangements for inverters. Both approaches are separate models with distinct tax treatment, and both can utilize the IAB under Section 7g of the German Income Tax Act (EStG).
Companies with their own PV systems on their premises
The classic scenario: A manufacturing facility, a logistics company, a farm, or a medical practice plans to install a rooftop or ground-mounted solar system to meet some or all of its own energy needs—and feeds any surplus electricity into the grid. As soon as the system exceeds 30 kWp and at least 90% of the electricity generated is used for commercial purposes (feed-in, direct marketing, or sale to an affiliated company), the IAB applies. Companies seeking to partially decouple their electricity consumption from the spot market while simultaneously shifting their tax burden will find the IAB under Section 7g(1) of the Income Tax Act (EStG) to be an effective advance planning tool. The specific economic viability depends on the system size, the proportion of self-consumption, and the electricity price—for more details, see our overview article on photovoltaic systems for your own business.
Investors in direct photovoltaic investments
The second group consists of high-net-worth individuals who run an active business or are self-employed and who invest directly in commercial photovoltaic projects—for example, through inverter revenue-sharing arrangements or similar models in which a clearly defined portion of the system is acquired under civil law as a separate movable asset. The following applies here: The IAB applies only if the acquired asset can be attributed to the investor’s business and the €200,000 profit limit as well as the 90% utilization rate are met. Purely private individuals without a business cannot utilize the IAB. We compare which investment form suits which tax situation in the Pillar article on PV investment.
When the IAB isn't the right fit for photovoltaics
Three scenarios typically exclude the IAB: first, residential PV systems up to 30 kWp, because Section 3(72) of the Income Tax Act (EStG) applies; second, systems where more than 10% of the output is used for private purposes; and third, scenarios involving no active operation (pure asset management, participation as a pure capital investor without a business license). Anyone who falls into one of these categories should consult with a tax advisor to explore alternative options—the IAB is not the right tool for this situation.
Three-year grace period before installing a photovoltaic system
Once the IAB has been established, the taxpayer has three years to make the investment. If this deadline is missed, the tax office will retroactively dissolve the IAB in the year the deduction was claimed—and charge interest on the back taxes at a rate of 1.8% per year.
The investment period under Section 7g(3) of the Income Tax Act is three years from the end of the fiscal year in which the IAB was established. Therefore, anyone who establishes an IAB in 2026 for a planned PV system must purchase or construct it by December 31, 2029, at the latest.
Special extensions were granted for older IABs issued during the COVID-19 pandemic—but these are set to expire. For IABs issued starting in the 2023 academic year, the standard three-year validity period will apply again, with no option for extension.
What happens if no investment is made? The tax office will retroactively dissolve the IAB in the original year of deduction—the profit will be increased retroactively, and the income tax for that year will be reassessed. There is no option to choose a later reversal. If the IAB is reversed retroactively, this can quickly turn the originally hoped-for liquidity advantage into its opposite—which is why the timing of the investment should be realistically planned before the IAB is established.
In addition, interest is charged on the additional tax assessment pursuant to § 233a AO at the rate specified in § 238(1a) AO. Since the 2022 Federal Constitutional Court reform, this rate has been 0.15% per month, or 1.8% per year.⁸ The law provides for a review of this interest rate every two years; according to the relevant trade press, the first review as of January 1, 2026, did not result in an increase—the rate remains at 1.8%. As of May 2026, an official publication of the review by the Federal Ministry of Finance (BMF) has not been explicitly confirmed; caution is therefore advised regarding updates in early 2026.
Capital Expenditure Deduction (IAB) and the Right Time to Invest in a Photovoltaic System
The interest period begins 15 months after the end of the deduction year (known as the waiting period). Therefore, if you establish an IAB for 2026 but do not invest by 2029, you will receive an amended tax assessment in 2030—with interest accruing from April 2028. Practical tip: Do not set up the IAB until the decision to invest in a photovoltaic system has at least been made in principle and a realistic timeline for the purchase is in place—do not do so speculatively “just in case,” because the tax office may otherwise retroactively cancel the IAB.
Current Legislative Developments 2024–2026
Recent reforms have significantly altered the framework surrounding the IAB—but not the IAB itself. The 2024 Growth Opportunities Act and the 2025 Immediate Investment Program strengthen combined depreciation allowances while leaving the substance of Section 7g(1) unchanged.
Three laws define the framework within which the IAB for photovoltaics applies as of May 2026:
Growth Opportunities Act (Federal Law Gazette I 2024 No. 108, effective March 28, 2024): Increase in the special depreciation rate under § 7g(5) of the Income Tax Act from 20% to 40% for acquisitions made on or after January 1, 2024. The IAB itself remains unchanged.⁹
Immediate Tax Investment Program / Investment Booster (Federal Law Gazette I 2025 No. 161, effective July 19, 2025): Reintroduction of declining-balance depreciation for movable assets whose acquisition or production costs are incurred between July 1, 2025, and December 31, 2027.¹⁰ The rate may not exceed three times the straight-line depreciation and is capped at 30%—for photovoltaic systems with a 20-year useful life, this results in a declining balance rate of up to 15% per annum of the remaining book value; for battery storage systems (10-year useful life), the rate is up to 30% accordingly. Here too: Section 7g of the Income Tax Act (EStG) itself remains unchanged; however, the declining-balance depreciation may be applied to the reduced tax base after the addition of the IAB.
Annual Tax Act of 2024: Standardization of the thresholds under Section 3(72) of the Income Tax Act (EStG) effective January 1, 2025, to 30 kWp per unit / 100 kWp per taxpayer.
For the IAB, this means, in summary: The instrument remains stable. What has improved is the combined effect with the other forms of depreciation—and thus the overall leverage. Anyone who wants to know how the three tiers—IAB, special depreciation, and declining balance depreciation—work together and what tax relief is realistic for which investment can find the calculated mechanics in our main article on photovoltaics and taxes. Together, the three reforms noticeably improve the economic viability of commercial PV investments—a clear political lever in favor of expanding renewable energy.
In Austria, the investment allowance (IFB) under Section 11 of the Income Tax Act of 1988 is a conceptually similar but structurally different instrument: The IFB applies only in the year of acquisition and thus functions more like the German special depreciation allowance than the IAB. The German advance deduction is structurally unique within the DACH region.
If you want to specifically evaluate the IAB for your solar investment
The mechanics of the IAB are clear—the scope for using it wisely depends on the specific investment structure. Learn more about PV investments now →
Make the most of the photovoltaic investment tax credit—with a partner who has years of experience in the solar industry
Logic Energy designs and builds photovoltaic systems precisely within the size range where the investment tax credit for photovoltaic systems applies legally—commercial rooftop systems, ground-mounted solar parks, and agri-PV. Our inverter revenue-sharing model is structured so that it can be treated as a separate asset to be capitalized; your tax advisor will handle the valuation on a case-by-case basis. With financing secured before construction begins and the personal liability of mediplan Helm e.K., you gain a contractual partner who understands the risk profile of an IAB-driven investment. Schedule a no-obligation initial consultation via our contact form —we’ll discuss your situation in 30 minutes.
FAQ
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All active businesses with profit-based income—sole proprietors, partnerships, and corporations, as well as self-employed professionals, farmers, and foresters—provided that their profit for the tax year does not exceed €200,000 and that at least 90% of the planned asset is used for business purposes.
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The IAB under Section 7g(1)–(4) of the German Income Tax Act (EStG) is established prior to the acquisition and reduces taxable income by a flat rate of up to 50% of the planned investment costs. The special depreciation under Section 7g(5) of the EStG, on the other hand, applies after the acquisition and allows for an additional depreciation of up to 40% in the year of acquisition and the four subsequent years. Both instruments can be combined.
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Three years after the end of the fiscal year in which the IAB was established (Section 7g(3) of the Income Tax Act). For IABs established in or after the 2023 fiscal year, the standard deadline applies without the COVID-19 extension.
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Generally speaking, no. The IAB requires active operation with income classified as business income and at least 90% business use. Systems on residential buildings with a capacity of up to 30 kWp that are used solely for personal consumption fall under the tax exemption provided by Section 3(72) of the Income Tax Act (EStG) and are generally not eligible for the IAB.
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The tax office reverses the IAB retroactively in the original year of deduction. The profit is subsequently increased, and the corresponding income tax is assessed retroactively—with interest charged at the current rate of 1.8% per year (interest begins to accrue 15 months after the end of the deduction year).
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Tangible fixed assets that the business uses in Germany for at least three years after acquisition: rooftop systems exceeding 30 kWp, ground-mounted solar parks, agri-PV, battery storage systems as standalone ancillary facilities, and inverters when structured separately. In-roof systems are excluded as they are considered part of the building.
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Although not legally required, it is strongly recommended in practice. The interplay between the IAB, Section 3(72) of the Income Tax Act (EStG), the 90% utilization rate, and current case law is complex; errors in setting up or closing out such accounts can be costly.
Sources
§ 7g EStG — Laws on the Internet — Current text of the key legal provision regarding the investment tax credit and special depreciation.
Federal Ministry of Finance (BMF) — Income Tax Manual on Section 7g of the Income Tax Act (EStG) — General Circular from the Federal Ministry of Finance dated June 15, 2022 (BStBl I 2022, 945).
Federal Ministry of Finance — 2025 Income Tax Handbook on Section 7g of the Income Tax Act — Current official interpretation of the requirements and eligible businesses.
§ 3 No. 72 of the Income Tax Act (EStG) — Laws on the Internet — Tax exemption for small photovoltaic systems, as amended by the 2024 Annual Tax Act (uniform 30-kWp limit effective January 1, 2025).
Federal Ministry of Finance — Letter Regarding the Tax Exemption for Photovoltaic Systems — Administrative Ruling on the Application of Section 3(72) of the Income Tax Act (EStG), Specifically Regarding the Reversal of Prior IAB.
Kleeberg — BFH Decision III B 24/24 on the IAB for PV Systems — Expert Analysis of the AdV Decision of October 15, 2024, on the Revocation of the IAB for Tax-Exempt Photovoltaic Systems.
NWB Database — IAB Reversal Regarding Tax-Exempt PV Systems — Lower Court: Hessian Fiscal Court (10 K 162/24) Regarding the Pending Main Proceedings Before the Federal Fiscal Court (BFH) III R 39/25.
Hesse State Tax Office — Interest under Section 233a of the German Fiscal Code (AO) — Explanation of the current interest rate of 0.15% per month (1.8% per annum) since the Second Amendment Act to the German Fiscal Code of 2022.
Haufe — Growth Opportunities Act: Determination of taxable income — Technical analysis of the increase in the special depreciation allowance under Section 7g(5) of the Income Tax Act (EStG) to 40% (Federal Law Gazette I 2024 No. 108).
KPMG Tax News — 2025 Immediate Tax Investment Program — Reintroduction of declining-balance depreciation for movable assets (up to three times the straight-line depreciation, capped at 30%) for capital expenditures and operating expenses from July 1, 2025, to December 31, 2027 (Federal Law Gazette I 2025 No. 161). For PV systems (20-year useful life), this results in an effective rate of 15% per annum of the remaining book value.