Anyone planning renovation, maintenance or modernisation work should bear in mind the possible changes to tax relief. According to the government’s draft of the Income Tax Reform Act 2027, the tax relief for tradesmen’s services is set to fall from 20 per cent to 15 per cent. At the same time, there are plans to reduce the annual maximum amount from €1,200 to €900. The Bundesrat issued its opinion on the draft bill on 16 October 2026. The planned cut to tax relief for tradespeople’s services was not addressed in that opinion. However, the legislative process has not yet been finalised. What does this mean for private households, and what are the key considerations when planning?
What is the tax relief for tradespeople’s services?
Anyone who commissions tradespeople to carry out work in their own home may, under certain conditions, be eligible for a tax relief under section 35a(3) of the Income Tax Act (EStG). This relief applies in particular to tradespeople’s services relating to renovation, maintenance and modernisation work.
The tax relief is deducted directly from the standard rate of income tax. It is therefore not a deduction from taxable income.
Under current legislation, the tax relief amounts to 20 per cent of the eligible expenses, subject to a maximum of €1,200 per year.
What change is planned from 2027?
The government’s draft Income Tax Reform Act 2027 provides for a reduction in tax relief for tradespeople’s services. The draft was approved by the Federal Cabinet on 2 September 2026 and debated at first reading in the Bundestag on 8 October 2026. On 16 October 2026, the Bundesrat issued its opinion on the draft bill. The planned reduction in the tax relief for tradespeople’s services is not included among the amendments proposed in the Bundesrat’s opinion. The legislative process therefore remains ongoing.
The following amendment is proposed:
- So far: 20 per cent of eligible expenses, up to a maximum of €1,200 per year
- According to the government’s draft bill, from 2027: 15 per cent of eligible expenses, up to a maximum of €900 per year
According to the government’s draft bill, the amendment is due to come into force on 1 January 2027. As the legislative process is still ongoing, the final legal provisions have yet to be finalised.
Example: This is how the planned cut would affect things
A simplified example illustrates just how significant the difference could be. A household has some renovation work carried out. The eligible labour costs amount to €6,000.
Under current legislation: €6,000 × 20 per cent = €1,200 tax relief
Under the proposed new rules: €6,000 × 15 per cent = €900 tax relief
Result: If the eligible labour costs were the same, the tax relief would be reduced by €300.
The amounts represent the tax relief that is theoretically possible. This is subject to the statutory conditions being met and the tax relief being available in the corresponding amount.
Which expenses are tax-deductible?
As a general rule, only labour costs are eligible for the tax relief under section 35a(3) of the Income Tax Act (EStG). Material costs cannot be taken into account.
The invoice should therefore clearly show what proportion relates to the labour. Travel and machinery costs may also be eligible for relief, provided they can be attributed to the eligible trade work.
Typical measures may include, for example, painting work, window refurbishment, repairs to the heating system or roofing work. The specific services involved and the legal requirements of each individual case are decisive.
Not every trade or building project automatically qualifies for tax relief. In particular, attention must be paid to how it differs from other tax incentives and to its connection with the private household.
What requirements must be met?
In order to claim the tax relief, the following points are particularly important:
- Invoice: An invoice must be provided for the expenses.
- Non-cash payment: Payment must be made into the service provider’s bank account. Cash payments are not accepted under any circumstances.
- Labour costs: In principle, only labour costs are eligible for funding; material costs are not.
- Private household: The tradesman’s work must meet the legal requirements for work carried out in an eligible household.
- No double tax deduction: The expenses must not already have been deducted in an impermissible manner as business expenses, income-related expenses or under any other tax category.
Furthermore, attention must be paid to possible exclusions. For example, under Section 35a(3) of the Income Tax Act (EStG), the tax relief does not apply to measures for which certain publicly subsidised loans or tax-free grants are utilised.
Renovation in 2026 or not until 2027: What do you need to bear in mind?
For property owners and other private households planning renovation, maintenance or modernisation work, the turn of the year may have tax implications.
As a general rule, the tax relief is allocated to the year in which the eligible expenses are paid. The date on which the order is placed or the work is completed does not, therefore, in itself determine the tax assessment period to which the expenses are allocated.
Anyone wishing to have work that was already planned carried out in 2026 should therefore check the actual service, invoicing and payment processes at an early stage. Under the conditions currently in force, the higher tax relief of 20 per cent, up to a maximum of €1,200, may still apply to expenses eligible for tax relief in 2026.
However, the decision to bring forward work should not be based solely on the tax benefit. The decisive factors are the actual performance of the work, the contractual arrangements, the invoicing and the date of payment. Merely postponing invoices or payments does not replace the need to check that the tax requirements are met.
Will the subsidy for domestic services remain unchanged?
The reduction provided for in the Government’s draft bill relates to the tax relief for tradesmen’s services under section 35a(3) of the Income Tax Act.
This is to be distinguished from domestic services as defined in section 35a(2) of the Income Tax Act (EStG). These may include, for example, certain cleaning or gardening tasks. The planned change to the tax relief rate for tradesmen’s services should not be equated with a general reduction in all tax reliefs for domestic services.
Which provision applies in a particular case depends on the nature of the service.
What should taxpayers do now?
Anyone planning a renovation or modernisation should bear in mind the current legal situation and the ongoing legislative process when drawing up their plans. In particular, it makes sense to,
- to review the planned measures and their expected implementation dates,
- to ensure that labour costs are shown as transparently as possible in quotations and invoices,
- to keep invoices and proof of payment in a safe place,
- to keep track of the payment dates for larger tradesmen’s invoices and
- to check whether there are any further tax incentives or exclusion rules that need to be taken into account.
Whether a tax reduction can actually be claimed, and to what extent, depends on the legal requirements and the circumstances of each individual case.
Are you planning any renovation or modernisation work?
The proposed amendment to income tax legislation may affect when and to what extent tradesmen’s services can be taken into account for tax purposes. An early review will help to clarify the relevant requirements and to factor the potential tax implications into your planning.
The tax experts at PLANARIS will be happy to assist you with any queries you may have regarding tradespeople’s services and their tax treatment.
Do you have any questions? Please get in touch with us for personalised advice.
Legal basis and sources
- Section 35a(3) and (5) of the Income Tax Act (EStG)
- Federal Ministry of Finance: Government Bill on the Income Tax Reform Act 2027
- German Bundestag: First reading of the draft on 8 October 2026
- Federal Council: Statement of 16 October 2026, Parliamentary Paper No. 507/26 (Resolution)
As at 19 October 2026. The reduction in the tax relief for tradesmen’s services, as set out in the government’s draft bill, has not yet been finally decided. The Bundesrat issued its opinion on 16 October 2026; the reduction in tax relief for tradesmen’s services is not included in its proposed amendments. This article is for general information purposes only and is not a substitute for tax advice in individual cases.
