Reversing the IAB: what happens if you don't invest — deadlines, interest, ways out

If an investment deduction (Investitionsabzugsbetrag, IAB) has not been absorbed by an actual investment by the end of the third financial year following the deduction year, the tax office reverses it — retroactively in the year it was claimed, even if that assessment has long become final (§7g (3) EStG). The result is a back-tax bill for the deduction year, bearing interest of 0.15% per month — running not from the reversal, but from 15 months after the end of the deduction year. That is the answer in two sentences. This article shows how the mechanics work in detail, what they cost in euros, and which ways out the law leaves.

The IAB itself — up to 50% of the planned acquisition cost deducted in advance, against your full marginal tax rate — is one of the strongest legal tax levers for businesses under the €200,000 profit threshold. All the conditions are summarised in Investitionsabzugsbetrag: all §7g EStG requirements — and who can use it; how the numbers work out is shown in IAB under §7g EStG: example calculation for battery storage. This piece is about the flip side: what happens when the plan does not come together.

When is an investment deduction reversed?

The law knows three triggers. The most common: the investment window expires without an investment. You have three financial years after the year of the deduction; the pandemic-related extensions only concerned old IABs from 2017–2019, whose last deadline expired at the end of 2023 — deductions formed today are back on the regular three-year window. Once it has passed, §7g (3) sentence 1 EStG is mandatory: the deductions "are to be reversed". The tax office has no discretion.

The second trigger is voluntary early reversal: since the Annual Tax Act 2020, §7g (3) sentence 1 states explicitly that reversing an IAB before the investment window expires is permitted — in full or in part, on application (more on this below). The third trigger bites after the investment: if the acquired asset does not remain in a domestic permanent establishment and is not used at least 90% for business purposes (or let) until the end of the financial year following acquisition, §7g (4) EStG unwinds the entire benefit — also covered below.

Why does the reversal work retroactively — despite a final assessment?

Because §7g (3) EStG brings its own correction rule. If the profit of the deduction year has already been assessed, "the relevant tax or determination notice is to be amended accordingly" — and expressly so even "if the tax or determination notice has become final" (§7g (3) sentences 2 and 3 EStG). The usual protection of finality does not apply here. On top of that, the law suspends the expiry of the assessment period: for the deduction year it does not end before the assessment period of the year in which the third following financial year ends. Sitting it out does not work.

In practice this means: the tax office amends the assessment of the deduction year, that year's profit rises by the reversed IAB, and the tax difference is claimed back — at the top marginal rate, 42% or 45% of the reversed amount, plus solidarity surcharge. The tax advantage that worked instantly when the deduction was formed is fully unwound. If it ended there, a failed IAB would merely have been an interest-free loan from the tax office. That is exactly what the legislator wanted to prevent — which is where the second building block comes in.

How much interest accrues on the reversal?

The back tax bears interest under §233a AO: 0.15% per full month, i.e. 1.8% per year (§238 (1a) AO, since 1 January 2019 — the 6% still quoted in places is history). The decisive point is when the interest clock starts: 15 months after the end of the calendar year for which the tax arises — the deduction year, not the year of the reversal. The exception for retroactive events, which would otherwise push the interest start date back (§233a (2a) AO), is expressly excluded by §7g (3) sentence 4 EStG: "§233a (2a) of the Fiscal Code shall not apply." Anyone who runs down the full window and then fails to invest therefore typically carries a good two years of interest.

Two details that are often calculated wrongly in practice: interest runs on the tax arrears, not on the IAB amount itself — at a 42% marginal rate, that is less than half of the reversed sum. And only full months count; the interest period ends when the amended assessment is issued. The rate is reviewed every two years by law and remains unchanged at 1.8% per year in 2026.

Worked example: what does a failed IAB cost?

An investor claims an IAB of €100,000 for 2025 — the plan was a stake in a battery storage project that never materialises. The investment window expires at the end of 2028; in mid-2029 the amended assessment for 2025 is issued.

The interest, then, is not the real damage — it is the surcharge. The real effect is that the entire tax saving flows back, often in a year in which the liquidity for it was never planned. Anyone treating the IAB as "save tax now, decide later" is building themselves a predictable claw-back of over 40% of the amount formed — with advance warning.

Can I reverse an IAB voluntarily ahead of time?

Yes — at any time within the investment window, in full or in part. §7g (3) sentence 1 EStG expressly permits early reversal; it works just as retroactively in the deduction year as the forced reversal after the deadline, including the interest clock starting 15 months after the deduction year. So what does it buy you? Time: the interest period ends with the amended assessment. Whoever realises in year two that the investment will not happen and reverses immediately pays noticeably less interest than someone who sits out the window and gets corrected in year four.

Partial reversal is also the instrument of choice when the investment turns out smaller than planned: if only €150,000 is acquired instead of the budgeted €200,000, the excess IAB portion can be reversed in a targeted way without touching the benefit for the amount actually invested. For investors who use the IAB year after year — as described in Using the investment deduction every year: building a portfolio over multiple years — this fine-tuning is part of the craft: better to correct early and precisely than late and completely.

Reversal despite investing: the 90% trap of §7g (4)

Even investing on time does not put you fully in the clear. The asset must remain in a domestic permanent establishment until the end of the financial year following acquisition and be used exclusively or almost exclusively — in the tax authorities' reading: at least 90% — for business purposes, or be let. If that threshold is breached, §7g (4) EStG reverses the set-off and the reduction of the acquisition cost; the special depreciation compared in Sonder-AfA §7g (5) vs. declining-balance AfA §7 (2): which combination, when? falls away too, because §7g (6) imposes the same use condition. And once again: a self-contained correction rule, finality overridden, the full interest period — §7g (4) sentence 4 excludes §233a (2a) AO just as (3) does.

For grid-scale battery storage this hurdle is structurally low: a system marketed continuously on the day-ahead, intraday and balancing markets via direct marketing is 100% business-used — in pure merchant operation there is no private-use share that could threaten the 90% threshold. Care is needed in setups with a private use component, above all small PV systems with self-consumption: that is exactly where the tax authorities and the courts are currently negotiating the boundaries.

How can the reversal be avoided?

The honest answer: with an investment project that genuinely exists before the IAB is formed. The reversal almost never hits those who had a concrete project with a timeline and executed it — it hits those who used the IAB as a tax deferral without any intention to invest. Anyone wanting to use the lever therefore needs access and a project first: as an entrepreneur in their own business acquiring and operating the asset — say a battery storage system or a PV plant — themselves, or as an employee via the two routes described in Investitionsabzugsbetrag: all §7g EStG requirements — and who can use it: founding a business of your own, or acquiring a commercial partnership stake in a GmbH & Co. KG that holds the project.

In a properly structured project investment, the deadline risk is addressed structurally: the project company forms the IAB for a specific, contractually underpinned acquisition with a defined timeline to closing — the investment is not a hope, it is the object of the structure. The residual risk shifts to where it belongs: project selection. What a robust project and a serious provider look like is covered in How to tell a trustworthy provider of energy direct investments.

Checklist: keeping the reversal under control

• Before forming: a concrete, documented investment project with a timeline — no IAB "in reserve".
• Watch the window: three financial years after the deduction year; do not plan the acquisition for the very end of the window.
• Know the interest mechanics: 0.15% per month on the back tax, running from 15 months after the end of the deduction year — not from the reversal.
• If the investment falls through: reverse voluntarily and promptly (in full or in part) instead of sitting out the deadline — every month shortens the interest period.
• After acquisition: ensure the asset stays in a domestic permanent establishment and is used at least 90% for business purposes until the end of the following financial year.
• If the acquisition is smaller than planned: reverse the excess IAB portion in a targeted partial step.
• Coordinate every step with your tax adviser — reversal and interest are assessment technique, not gut decisions.

Whether a direct investment with an IAB fits your situation — and what an investment project looks like that meets the three-year window reliably — is something we clarify in a no-obligation initial consultation, together with your tax adviser if you wish.