IAB under §7g EStG: example calculation for battery storage

The Investitionsabzugsbetrag under §7g EStG (IAB) is the strongest tax instrument currently available to German private investors for entrepreneurial direct holdings. For a €300,000 direct investment in a large-scale Battery Energy Storage System (BESS), it produces — combined with the Sonder-AfA and declining-balance AfA — a year-1 tax relief of about €121,000 at the top marginal rate. This article walks through the calculation line by line, without marketing simplification, and names the pitfalls most often overlooked in practice.

What the IAB is — in two sentences

The Investitionsabzugsbetrag lets you deduct up to 50 % of the planned acquisition cost of a future investment as a tax-reducing item before the year of acquisition — in any of the three years prior. You lower your current taxable income today and partially finance the investment from tomorrow's tax refund.

In the year of acquisition the IAB is settled against the actual investment (technically: it is added back to profits and simultaneously deducted from the acquisition cost). The reduced cost base is then the basis on which the Sonder-AfA (§7g (5) EStG) and the regular straight-line or declining-balance AfA (§7 (1) or (2) EStG) apply.

When §7g applies

Three conditions must be cumulatively met. First: you generate business income, agricultural and forestry income or income from self-employment. For a direct investment in a BESS, the holding is therefore wrapped in a tax-transparent vehicle — typically a sole proprietorship (Einzelunternehmen) for single-investor cases, a GbR for small co-investments, or a GmbH & Co. KG for larger structures. This lets IAB, Sonder-AfA and regular AfA flow directly into your personal income-tax assessment and hit your full marginal rate. A plain corporation (GmbH) is deliberately not the standard — it would funnel the effects to the corporate income-tax rate (ca. 30 %) instead of your personal marginal rate (up to 47.5 %). Second: the profit (tax-balance sheet) of the operating entity must not exceed €200,000 in the year the IAB is recognised — for co-investment vehicles the cap applies per business, not per participating investor. Third: you intend to acquire a depreciable, movable fixed asset that, once acquired, remains in the business at least until the end of the year following the year of acquisition and is used for business purposes by at least 90 %.

BESS installations meet these conditions cleanly: they are movable fixed assets, depreciable, and through the direct marketing of storage capacity on day-ahead, intraday and balancing markets they are 100 % business-used.

Step 1: IAB in the prior year — minus €150,000 from profits

Setup: you plan the €300,000 direct investment in a battery storage system and expect a top marginal tax rate of 47.5 % (45 % top rate plus 5.5 % solidarity surcharge — applies from ca. €278,000 taxable income). In the year before acquisition you deduct 50 % of the planned acquisition cost — €150,000 — as IAB.

Important: the IAB is a forward-looking allowance. If you recognise it in year 0 and do not actually complete the investment by the third following year at the latest, the IAB has to be reversed retroactively — with interest of 0.15 % per month under §233a AO (1.8 % p.a.). The IAB is therefore only for investors with a high degree of certainty that the investment will go ahead.

Step 2: Sonder-AfA §7g (5) — up to 40 % in the year of acquisition

In the acquisition year the Sonder-AfA under §7g (5) EStG kicks in. Cumulatively it amounts to up to 40 % of the acquisition cost — applied to the post-IAB depreciation basis. In our example: €300,000 minus €150,000 IAB = €150,000 AfA basis. 40 % of that = €60,000.

These €60,000 can be claimed in full in the acquisition year or spread across up to four additional years — freely distributable across years 1 through 5. In practice investors in the top tax bracket pull the Sonder-AfA as far forward as possible — the present value of the tax saving is highest in year 1. With full year-1 use: €60,000 × 47.5 % = €28,500 in additional tax savings.

Step 3: Regular AfA — start declining-balance, then cross over

Regular AfA under §7 EStG runs in parallel to the Sonder-AfA. For large-scale battery storage the applicable rates are:

• Straight-line under §7 (1) EStG: 10 % per year on the depreciation basis (€150,000) at an official useful life of 10 years for BESS — that is €15,000 per year.
• Declining-balance under §7 (2) EStG: 3× the straight-line rate, capped at 30 %, under the extended provisions of the Wachstumsbooster framework for acquisitions 2025–2028. Applied to our depreciation basis: 30 % × €150,000 = €45,000 in year 1.

Important: the switch is one-directional — from declining-balance to straight-line, not back. The AfA plan is therefore modelled before first applying declining-balance, so the crossover year is fixed from the start.

Year-1 total effect — the table

From the investor's point of view the calculation condenses to four lines — covering the acquisition year and including the pre-pulled IAB:

Relative to the investment volume the total effect is around 40 % — a good two-fifths of the €300,000 flows back as tax relief in the first year via IAB, Sonder-AfA and declining-balance AfA. If you finance the asset with a project-typical debt ratio of 65–75 %, the effective equity outlay drops into the single-digit-percent range of the nominal volume.

Three pitfalls from practice

1. The profit ceiling sits at the business, not at the investor

The €200,000 profit ceiling under §7g (1) sentence 2 no. 1 EStG applies to the business that recognises the IAB — for a co-investment KG that means the KG itself, not you as a limited partner. In larger projects the ceiling can therefore be hit in individual years. We structure our holdings so that KG profits stay predictably below this ceiling — and we re-check the IAB status every fiscal year.

2. In-use requirement: 90 % business, at least to the end of the following year

The IAB is reversed retroactively if the asset is, after acquisition, used by less than 90 % for business purposes or withdrawn from business assets before the end of the year following acquisition. For a battery storage system continuously connected to a direct marketer this is uncritical — for structures with a self-consumption share (e.g. co-located with on-site use) the 90 % threshold must be actively monitored.

3. An IAB without a realistic investment plan is expensive

If you recognise an IAB without actually investing within three years, you must reverse it retroactively — and the resulting higher profit accrues 0.15 % monthly interest under §233a AO. On €150,000 of IAB across three years that adds up to roughly €8,100 in interest, on top of the regular back-tax. The IAB is not a 'save tax now, decide later' tool — it is a forward-looking allowance for planned investments.

What happens after year 1

After the strong year-1 tax effect, declining-balance AfA continues with a decaying annual contribution until the crossover year (typically year 7), at which point the AfA plan switches to straight-line on the residual book value. The BESS hardware is fully depreciated for tax purposes by the end of the 10-year useful life. In parallel, the operational cash flows from direct marketing of storage capacity start to come in.

In tax-planning terms: year 1 carries the largest tax effect — comparable to a one-time bonus to yourself. From year 2 onwards the recurring storage revenues are offset by ongoing AfA, keeping the tax burden on operating results moderate. The full trajectory is part of every sensitivity calculation we walk through with you before a holding is structured.

Which documents you need

For your tax advisor to recognise the IAB cleanly and resolve it in the following year, three document packages are required:

1. For recognising the IAB in year 0: written documentation of investment intent (informal but documented), project data (acquisition cost, planned acquisition year, business use) and the profit-determination status of the operating entity.
2. For the acquisition itself: purchase and transfer agreement, commissioning protocol, grid-connection and direct-marketing contracts — all in the name of the holding entity in which you participate as a co-investor.
3. For ongoing AfA and Sonder-AfA: the KG's AfA register with all elections (straight-line vs. declining-balance, Sonder-AfA distribution across up to 5 years), aligned with your individual tax situation.

We provide the first two packages in full and work directly with your tax advisor — or with our partner firms — on the third. That removes the typical gap between structuring and tax filing.