Home Building and Tax: What Can Be Deducted
Whether home building can be deducted for tax depends above all on the use: with owner-occupation the construction costs are in principle a private matter, with letting large parts can be claimed via depreciation (AfA). For owner-occupiers, Section 35a of the Income Tax Act remains for the labour share of tradespeople's services. This guide classifies the basics (as of 2026) and expressly does not replace tax advice.
Many builders wonder whether house building can be deducted from tax. The answer depends decisively on how you use the house: with an owner-occupied property, the build costs are in principle a private matter and not depreciable, whereas with letting, considerable parts can be claimed for tax through depreciation (Abschreibung, AfA). An important building block for owner-occupiers is the tax reduction for tradesperson services under Section 35a of the Income Tax Act (§ 35a EStG) — here, however, only the labour share counts, and upper limits apply. This guide sets out the basics and does not replace tax advice. How high the build costs turn out at all is shown by the prefab house prices 2026; you can work out your sum in the prefab house cost calculator.
Not tax advice – please read
This guide conveys general basics and expressly does not replace individual tax advice. Tax law changes, and every case is different. Always clarify your concrete situation with a tax adviser or an income-tax assistance association (Lohnsteuerhilfeverein) before making tax decisions.
Own use or letting – what makes the difference?
Short answer: The core lies in the use: anyone who lives in their house themselves can in principle not deduct the pure build and acquisition costs from tax — they count as private living. If, by contrast, the property is let, the costs are predominantly deductible: the building share is depreciated over years (AfA), and financing interest and running costs reduce the rental income as income-related expenses (Werbungskosten). The land share stays out of it in both cases, because land and ground do not wear out.
Tax treatment at a glance (basics, as of 2026)
| Aspect | Own use | Letting |
|---|---|---|
| Build costs (building) | not deductible | depreciation over the useful life |
| Land share | not deductible | not depreciable |
| Financing interest | not deductible | as income-related expenses |
| Tradesperson labour share | § 35a EStG possible | as income-related expenses |
| Running costs | private | as income-related expenses |
With letting, the building depreciation is the central instrument: a certain percentage of the building acquisition or production costs is entered annually as an expense and reduces the taxable rental income. How high the rate is and which special rules apply depends on the year of construction, use and current legal situation — the relevant basis is regulated by the Income Tax Act, which you can view in full text at the Federal Ministry of Justice . The exact calculation belongs in the hands of a tax adviser.
Calculate first, then build
Whether own use or letting — the overall calculation decides your budget. Compare the offers of several prefab house manufacturers from our network free of charge and get clarity about the costs early.
Tradesperson services under § 35a EStG – what is deductible?
Short answer: Owner-occupiers too can benefit: under § 35a EStG, part of the cost of tradesperson services in your own household can be deducted directly from tax. Deductible, however, is exclusively the labour, travel and machine-cost share — not the material. In addition, a statutory upper limit applies to the tax reduction per year. Important: with a pure new build, the actual erection costs are generally excluded; the rule aims above all at renovation, maintenance and modernisation work in an existing household.
- Only the labour, travel and machine share is favoured – material does not count.
- An annual upper limit applies to the tax reduction under § 35a EStG.
- The prerequisite is a proper invoice with the labour share shown separately.
- Payment must be made cashlessly by bank transfer – cash payment is not recognised.
- Pure new-build erection costs are generally excluded.
For the deduction to work, two formal points are decisive: the invoice must show the labour share separately, and you must transfer the amount, not pay in cash. If one of the two is missing, the tax office does not recognise the service. So keep invoices and account records carefully. Whether a concrete measure — such as work on the outdoor facilities after moving in — falls under § 35a is a case-by-case question for the tax adviser.
New build vs. existing stock
The boundary between a fundable tradesperson service and a non-favoured new-build measure is complex in detail. As a rule of thumb: what serves the initial production of a new build is mostly excluded; work on an already existing household can be favoured. The distinction in the individual case is handled by the tax adviser.
What other costs play a role for tax?
Short answer: Besides depreciation and § 35a EStG, there are further points of contact with tax and levy law. On purchase, real estate transfer tax (Grunderwerbsteuer) is incurred, the rate of which differs by federal state. A home office can under certain conditions be deductible pro rata. And anyone who lets partially — for example a granny flat — can claim the costs pro rata. Here too: the concrete treatment depends on the individual case and belongs in tax advice.
The real estate transfer tax counts among the ancillary building costs and is unavoidable on acquisition; you should plan for its amount from the start. How such items fit into the overall calculation is shown by the overview of the ancillary building costs; the level of the land share is classified by the guide on the plot prices . Anyone modernising energetically should, in parallel, check the relevant subsidies. For the deductibility of a home office or a partial letting, many details matter — such as the actual use and the division of the areas. Only experts with a view of your concrete documents can make solid statements on this.
Which documents should I keep?
Short answer: Anyone who wants to use tax advantages needs clean documentation. Keep all invoices with the labour share shown separately, account statements as proof of payment, the build and purchase contract, and evidence of financing interest, all in order. With letting, records of running costs and rental income are added. A complete record file is the basis for the tax adviser getting the maximum out and the tax office recognising the information.
It is best to set up a folder — digital or physical — for all tax-relevant records right from the start of construction. This saves laborious searching later and ensures that no favoured services escape you. Neutral, generally understandable information on building and finances is also offered by the consumer advice centre. The binding assessment of your individual case, however, remains the task of a tax adviser.
Conclusion: know the tax advantages, use advice
Short answer: Whether and how much can be deducted from tax with house building is decided above all by the use: owner-occupiers benefit essentially from § 35a EStG for the labour share of certain tradesperson services, landlords additionally from the building depreciation and the deduction of interest and running costs. Watch out for correct invoices with a separate labour share, cashless payment and a complete record file. Because tax law is complex and changes, the concrete assessment belongs in expert hands.
Never factor tax effects into your financing as certain income, but as possible added value that has to be checked in the individual case. Plan the building project solidly first on the basis of the pure costs and then have the tax optimisation calculated through by a tax adviser or income-tax assistance association. This way you combine a solid build calculation with the advantages that you are actually entitled to — without relying on assumptions that may not apply at all in the concrete case.
Calculate solidly, decide wisely
A solid build calculation is the basis for any tax optimisation. We connect you free of charge and without obligation to suitable prefab house providers from our network who break down the costs for you transparently.
What does your dream house really cost?
Request suitable quotes from vetted manufacturers for free and compare the prices per square metre for your construction project.
Compare house prices now