Deducting photovoltaics from tax: when depreciation and the §7g deduction still work

Until 2021 the question had a simple answer: a photovoltaic system was an asset, it was depreciated, and the depreciation reduced the tax bill. Since the 2022 tax year there are two opposite answers, and which one applies is decided solely by the size of the system. Small rooftop systems are exempt from income tax under §3 no. 72 EStG, and that exemption simultaneously removes every deduction: where no taxable income arises, there is nothing to deduct either. Anyone looking to use photovoltaics as a deliberate tax lever therefore needs a system outside this exemption.

Can I deduct my photovoltaic system from tax?

That depends on its size, and the line is drawn more sharply than most expect. A rooftop system of up to 30 kilowatts (peak) per residential or commercial unit is tax-exempt and therefore not deductible; there is no depreciation, no business expense deduction and no investment deduction. Only above that threshold, or with a ground-mounted system, which the exemption does not cover in the first place, does the full tax toolkit open up again. The three cases at a glance:

The widespread notion that a solar system is „deductible somehow“ therefore dates from before 2022. For the typical system on your own detached house it no longer holds, and not because the legislator scrapped the deduction, but because it exempted the income. For the tax return that is a relief; as an instrument for reducing a high marginal rate, this class of system drops out.

Which systems are tax-exempt under §3 no. 72 EStG?

Exempt are income and withdrawals from operating photovoltaic systems „on, at or in buildings (including ancillary buildings)“ where two limits are observed: a maximum of 30 kilowatts (peak) per residential or commercial unit, and a maximum of 100 kilowatts (peak) in total per taxpayer or partnership. What counts is the installed gross capacity as recorded in the Marktstammdatenregister, not the inverter rating. If all income from this activity is exempt, sentence 2 of the provision means no profit has to be determined at all; the corresponding tax schedule falls away for this activity.

Three details are regularly overlooked. First, the uniform 30 kWp: until the end of 2024 they applied only to detached houses and commercial properties, while multi-unit and mixed-use buildings were capped at 15 kWp per unit. Under §52(4) sentence 29 EStG the uniform limit applies to systems acquired, commissioned or extended after 31 December 2024. Second, the 100 kWp mark is a hard threshold, not an allowance: anyone exceeding it across all their systems loses the exemption not for the excess but entirely, for every system. Third, there is no election. The exemption applies by operation of law, without any application; waiving it in favour of depreciation is not possible.

Why does the exemption cost the depreciation lever?

Because of §3c(1) EStG. The provision prohibits deducting expenses that stand in direct economic connection with tax-exempt income. If a system falls under §3 no. 72 EStG, that removes in one stroke the straight-line and declining-balance depreciation, the running business expenses for maintenance, insurance and meter rental, the financing interest and the investment deduction under §7g EStG. A loss from the system can no longer be offset against other income either. The tax authorities made this explicit in the BMF circular of 17 July 2023.

For legacy cases one point remains unresolved to this day: anyone who formed an investment deduction before 2022 for a system that subsequently became exempt is expected by the tax authorities to reverse it. The Federal Fiscal Court expressed serious doubts about this in summary proceedings (decision of 15 October 2024, III B 24/24); a decision on the merits is still pending. Anyone affected should keep the assessment open. The deadlines, interest consequences and ways out of a reversal are covered in detail in Reversing the IAB: what happens if you don't invest, deadlines, interest, ways out.

From when is a photovoltaic system deductible again?

As soon as it sits outside the exemption, and any one of three constellations is enough. If a single rooftop system exceeds 30 kWp per residential or commercial unit, for example on a warehouse, a farm building or a larger apartment block, its income is taxable and all deductions are open. The same applies once the sum of all systems held by one taxpayer breaches the 100 kWp threshold.

The practically most important case is already in the statutory wording: the exemption applies only to systems „on, at or in buildings“. Ground-mounted systems are never covered, regardless of their capacity. A solar park on a meadow, on a converted site or as agrivoltaics above a field is therefore fully taxable and fully deductible. That is exactly why the §7g lever works with a direct stake in a solar park while it no longer applies to the system on your own roof. How such a project is built economically is shown in Investing in solar parks: revenues, costs and tax leverage at a glance; the variant with continued farming is described in Investing in agrivoltaics: dual land use, revenues and tax leverage at a glance.

Taxable also means commercial. Operating a non-exempt system creates business income and thus, in principle, trade-tax liability. In the overall burden this rarely matters much for individuals and partnerships, because the trade-tax allowance of €24,500 applies and trade tax is credited against income tax under §35 EStG; the full calculation, including which municipality receives the tax, is shown in Trade tax on PV and storage direct investments: how much of it actually sticks. Anyone bringing a system into an existing freelance structure, however, should discuss the commercial infection rule first; that constellation is described in Saving tax as a physician or dentist: the §7g lever alongside the practice. Commercial also means the tax office examines profit intention, and for ground-mounted installations that examination remains fully in play; what counts there is shown in Liebhaberei and profit intention: when the tax office cancels the tax lever.

Which depreciation is available for a commercial system?

Four instruments interlock, and they can be combined. The official depreciation table sets a useful life of 20 years for photovoltaic systems, which yields straight-line depreciation of 5% per year. The remaining levers build on that:

Two points are specific to photovoltaics. Declining-balance depreciation is capped at three times the straight-line rate and at 30%; with a 20-year useful life that is 15%, so the 30% cap is not reached. A battery storage system with a ten-year useful life exhausts it in full, which makes the year-one effect larger there. The full comparison of both asset classes is set out in Sonder-AfA §7g (5) vs. declining-balance AfA §7 (2): which combination, when?. And the investment deduction comes with requirements of its own, among them the €200,000 profit cap per business, the three-year investment deadline and almost exclusive business use; they are broken down in Investitionsabzugsbetrag: all §7g EStG requirements, and who can use it.

What does it deliver in concrete terms? The worked example

Starting point: €300,000 of investment volume in a commercial photovoltaic system, marginal tax rate 44.3 %. The investment deduction is formed in the year before acquisition and reduces the depreciation base to €150,000; special and declining-balance depreciation are added in the acquisition year.

Around €110,000 of tax relief on €300,000 of investment volume, overwhelmingly in the first two years: that is the order of magnitude actually at stake in „deducting photovoltaics from tax“, and for the exempt rooftop system it is exactly zero. The individual positions and the pitfalls behind them are broken down in IAB under §7g EStG: example calculation for battery storage using a storage system as the example. Important for an honest expectation: the effect is a deferral, not a permanent saving. Once the depreciation runs out, the taxable share of profit rises again; how that plays out over the term and on a later sale is shown in After the IAB: How the ongoing returns and the sale of a direct investment are taxed.

And what about VAT?

VAT follows a logic of its own and is independent of income tax. For the supply and installation of photovoltaic systems on or near residential and public buildings, §12(3) UStG provides a zero rate: the operator pays no VAT on purchase and therefore no longer has to opt into standard taxation merely to reclaim input VAT. That is exactly what the rule was created for, and it has largely made the former standard route of waiving the small-business scheme redundant.

For a ground-mounted system or a commercial project the zero rate does not apply. There the standard rate applies on purchase and input VAT is fully recoverable, because the electricity produced is sold subject to VAT. Economically that is no disadvantage: the input VAT on the purchase flows back, it is merely a liquidity item during the construction phase that any sound calculation already reflects. How the input VAT deduction works in practice, why the small-business scheme is waived for it, and when §15a UStG can become a trap is shown in VAT on PV and storage direct investments: why 19% is charged here, and how it flows back.

Which route suits whom?

• Own home and self-consumption: the rooftop system up to 30 kWp. Straightforward for tax purposes, with no filing burden and no VAT on purchase, but without any deduction. Its return lies in the electricity bill saved, not in the tax.
• Own hall, farm or business premises: the commercial rooftop system above 30 kWp per unit. Full depreciation and investment deduction, in exchange for profit determination, trade-tax registration and ongoing filing.
• High marginal rate, no space of your own: a direct stake in a ground-mounted system or solar park. The full tax lever without a roof of your own, in exchange for entrepreneurial risk and a long commitment.
• Maximum year-one effect: battery storage instead of a PV system. A ten-year useful life means 30% declining-balance depreciation instead of 15%; the revenue logic is a different one, set out in Battery storage returns: where the revenue comes from, and what is realistic.

Which of these routes suits you depends on your marginal rate, the space available, your time horizon and your risk appetite, and on whether the project stands up even without the tax effect. Where the §7g lever ranks among the other legal strategies for high earners is shown in Legally reducing your tax: the most effective strategies; the comparison with the classic real asset is drawn in Solar or property as an investment: an honest comparison of two real assets. If you want to see the calculation against your own numbers, we do that in a no-obligation first conversation: tax effect, effective equity input and project risk, in coordination with your tax advisor. We do not give return promises.