Free letter from the tax office: tax breaks for small photovoltaic systems specified

Since the Federal Government and Bundestag did not follow the proposal, the tax authorities of the federal states have agreed on an administrative regulation with the Federal Ministry of Finance instead: In a so-called BMF letter, the ministry instructs all tax offices, under certain conditions no longer to assume an intention to make a profit from the electricity feed-in from small photovoltaic systems and CHP units up to 2.5 kilowatts. At the end of October, the ministry published an expanded version of the BMF letter, which replaces the original version but does not change the basic tax exemption for small systems.

No profit from the sale of electricity

This is justified with "the simplification of the administrative procedure, since when using the simplification regulation, complex and controversial result forecasts for the assessment of the intention to make a profit neither have to be prepared nor checked". What is meant by this is that with newer photovoltaic systems, the feed-in tariff is no longer so high that the sale of electricity to the grid operator could generate profits that would be taxable. We already described this in detail last year in our article "Economical, but without profit".

The BMF letter documents a fact that we have represented in our tax section for a long time. This fact also arises without a change in tax law or an administrative instruction when applying tax law under the current financial circumstances for small photovoltaic systems. Many system operators could actually save themselves the filing of an annual tax return for the photovoltaic system. To do this, however, the tax office had to be proven with a profitability forecast that the operation of the system was a "hobby".

New hobby choice

The agreement between the federal and state governments is now turning the tables by allowing system operators up to ten kilowatts to choose the hobby on application. Background: If a self-employed, commercial activity does not generate any taxable profits in the long term, it is a hobby for income tax purposes because there is no intention to make a profit. Almost in the same way as they can also choose whether they want to be subject to sales tax or can be exempt from sales tax via the small business regulation.

Similar to the small business regulation in the sales tax, the financial administration also attaches some, but different, requirements to the hobby voting right:

The new regulation becomes a right to vote because the BMF expressly grants the system operators the opportunity to prove that they intend to make a profit in individual cases and thus subject the photovoltaic system to income tax. In contrast to the input tax refund when choosing the VAT liability, there is rarely a sensible reason for this. Tax-saving models through early special depreciation such as the investment deduction amount (IAB) are less worthwhile in practice.

Inconsistencies and new questions

Despite all the joy about the brevity and comprehensibility of the BMF letter from June, it raised a few questions. For example, why the simplification for photovoltaic systems on three-family houses, unlike on two-family houses or on garage plots, is out of the question. This has been changed in the update. Another question that remains open after the update is why investments dating back to 2004 are given preferential treatment, although most investments from this period generate tax-relevant profits.

A frequent practical problem is also several photovoltaic systems on the building, which were often installed in different years. Even the size limit was not clearly formulated in the first version: did "ten kilowatts" mean the module output (actually kilowatt peak) or the connected load of the photovoltaic system, as is undoubtedly the case with the 2.5 kilowatt CHP? So would a 12-kilowatt peak system with a 9.5-kilowatt inverter be a system with up to 10 kilowatts?

What about a 2013 six-kilowatt array on the same roof with a 2020 eight-kilowatt array? Are these two systems up to ten kilowatts and can the simplification rule be used for both? Or is it a photovoltaic system with 14 kilowatts? Or is the operator, as some tax offices claim, only allowed to vote for one system?

There must have been an onslaught of queries of this kind, which prompted the Federal Ministry of Finance to publish an expanded version of its letter within just five months. Among other things, it clarifies that with reference to the EEG, the module output is relevant for the size of the photovoltaic system and that several photovoltaic systems of the operator are combined with regard to the ten-kilowatt limit. So it is not about the individual system, but about the “photovoltaic business” of a tax person as a whole. Nevertheless, it can be said that the simplification regulation of the ministry represents a significant reduction in bureaucracy for the vast majority of plant operators and creates more legal certainty.

Good argumentation aid for everyone

And the regulation should even help operators who are not formally affected by it. The fact that the tax authorities basically assume that small photovoltaic systems are no longer taxable businesses, as is documented in the BMF letter, also helps the operator of a 15-kilowatt system to convince his tax office of his passion for income tax.

Anyone who wants to make use of the simplification regulation for hobbyists must declare this in writing to their tax office. Whether the requirements are met is checked on the basis of the information provided. It therefore makes sense to use the forms provided by the tax authorities of the federal states on the Internet. The Bavarian State Office for Taxes, known for its extensive download "Help on photovoltaic systems", has provided a leaflet in addition to the form, which unfortunately does not answer many practical questions.

But one thing is certain: whoever chooses the hobby determines that from now on and for the following years there will be no profits that would be taxable and neither income nor costs of the photovoltaic system will be taken into account in income tax. The decision also has a retrospective effect on the open, changeable tax years. Decisions can be issued by the tax office with reservations (e.g. the review, § 164 AO) or provisionally (§ 165 AO) or an objection to the decision has not yet been decided.

Tax savings for old systems

This is an advantage if profits were taxable over the years, because the simplification regulation then brings a tax refund and future annual tax savings. This is likely to be the case for many operators of photovoltaic systems from the early years from 2004 onwards. However, if the operator has used the photovoltaic systems as a depreciation model for tax savings, there is a risk of back tax payments. In this case, before deciding on the regulation, a tax consultant should first be consulted, who will check in particular whether the tax years with the early depreciation have already become irreversible.

The new version of the BMF letter now also explains when you have to decide for or against the simplification regulation: "For new systems that are put into operation after December 31, 2021, the application is valid until the end of the assessment period which follows the year of commissioning. For old systems (commissioned before December 31, 2021), the application must be submitted by December 31, 2022.”

It should be clear that you shouldn't use the option in such a way that you first claim losses for tax purposes, wait until these decisions become binding and then later switch to hobby in order to save taxes again in the following years. When it comes to new systems, you should therefore make a decision as soon as possible. In the case of an older plant, the non-exercise of the right to vote by the end of 2022 would probably be interpreted by the tax office as meaning that the plant should (continue to) be operated with the intention of making a profit. A change is then impossible for the time being.

Only for systems after the end of the EEG funding period is there another possibility. At this point it gets strange again and contradictory in terms of tax law: According to the newer version of the BMF letter, a "hobby application" should again be possible for systems put into operation before 2004, but then, in contrast to the other regulations, only for the years after Promotional becomes tax effective. It remains to be seen whether this will also apply to the plants of later years in the coming years.

The new administrative regulation only affects the income tax treatment of the photovoltaic system and not the sales tax. Furthermore, the system operator can choose to be subject to sales tax in order to reduce the purchase price of the system - with the associated bureaucratic obligations and costs.

Saving tip for new systems

In terms of income tax, however, the hobby even opens up a small tax saving opportunity: since it is not a commercial enterprise, the acquisition costs are not operating expenses, but private expenses. Therefore, the share of costs for work performed during assembly and installation can be claimed in the private tax return (§ 35a Para. 3 EStG), by deducting 20 percent of these costs from the tax burden. This goes up to an annual maximum of 1200 euros per household for craftsman services.

"Photovoltaics without the tax office 2.0"

In terms of sales tax, most private photovoltaic operators have already had the option of avoiding sales tax by choosing the small business regulation. With the simplification regulation in the letter from the Federal Ministry of Finance, there is now for the first time an option to choose a hobby in income tax. Both together open the way for many private operators to a photovoltaic system without tax bureaucracy.

In order to make tax-free happiness perfect, you need a trick in communicating with the tax office. So that no tax returns have to be submitted despite the small business regulation, it is necessary that two ticks are not set under the tax number in the IT system of the tax office: Ask your clerk "NOT set the U and G signals". , so that your photovoltaic system is not registered as a commercial enterprise.

With regard to the BMF letter, the Nuremberg tax consultant Markus Sprenger recommends speaking of an "application for non-assessment" in order to clearly classify the meaning and purpose of the regulation in terms of tax law. So far, he has had good experiences in communicating with the tax authorities.

This can be implemented in this way for private individuals who, apart from the photovoltaic system, have no other income from self-employed or commercial activity, because the taxpayers have to report anyway if the circumstances change in this regard.

It would make sense if the tax authorities would generally recommend this approach to the tax authorities for small photovoltaic systems, in line with the current regulation, in order to avoid pointless bureaucracy, save unnecessary costs for tax authorities and photovoltaic operators and reduce the fear of the tax office as a hurdle when purchasing private photovoltaic systems.