Tax Credits for Energy Efficient Home Improvements
The tax credits for making improvements to your home may sometimes be referred to as investment tax credits or ITC. Prepare and e-file on eFile.com to get the most out of your tax refund. See additional tax credits, such as credit for purchasing an electric vehicle, and prepare to tax prepare by Tax Day.
Key points:
- There are two credits available for making energy efficient home improvements: The Residential Clean Energy Credit and the Energy Efficient Home Improvement Credit.
- As a homeowner, you can claim a federal tax credit for making energy efficient home improvements, including exterior doors, insulation and air sealing materials or systems, windows, central air conditioners, furnaces, water heaters, and more.
- Green energy or environmentally friendly installations may qualify for the Residential Clean Energy Credit, including solar panels, small wind energy devices, and geothermal energy producers.
- When you invest in these home improvements, use tax software like eFile.com to help you claim your IRS credit on the right forms and get the full amount that you are entitled to.
Clean Energy and Efficiency Credits
The Inflation Reduction Act or IRA brought forth and modified many green incentives, including changes to the IRS EV tax credit. As part of this, the 755-page act includes Part 3 - Clean Energy and Efficiency Incentives for Individuals which contains the extension and modification of the Nonbusiness Energy Property Credit, now called the Energy Efficient Home Improvement Credit. Additionally, the Residential Clean Energy Credit was introduced, which includes the installation of solar panels, home battery storage, and other green energy properties. Here are the key points:
- The credits have been extended to last until Tax Year 2032 for the Energy Efficient Home Improvement Credit and 2034 for the Residential Clean Energy Credit.
- For most years, the credits will be equal to 30% of the amount paid for energy efficient improvements instead of phasing out earlier.
- The maximum amount of the Energy Efficient Home Improvement Credit is set at $1,200; $600 for general energy property; $600 for windows; $250-$500 for exterior doors; $2,000 for heat pumps, heat pump water heaters, and biomass stoves and boilers. There is no longer a lifetime cap of $500 for properties or $200 for windows.
- The Residential Clean Energy Credit does not have an annual cap or a lifetime limit.
- See additional details.
Note: electric heat pumps replace a traditional furnace. These are capable of producing hot and cool air to keep your home at an ideal temperature throughout the year. These show a projected savings over burning fuels which, when combined with the rebates or tax credits on this page, can save you money in the long run.
Related: how to claim the $7,500 EV tax credit.
As part of the new Energy Efficient Home Improvement Credit, now extended through December 31, 2032, the credit may be worth $2,500-$5,000 based on certain criteria:
- Energy Star program requirements
- Zero Energy Ready Home program requirements
- Prevailing wage requirements for multifamily units only.
You may benefit by claiming one of these credits; below is a comparison of each credit's key points.
Exterior doors, windows or skylights, insulation materials, central A/C systems, water heaters, a furnace, boilers, heat pumps, biomass stoves and boilers, and energy audits.
Solar, wind, and geothermal power generators; solar water heaters, fuel cells, and battery storage systems.
The credit is equal to 30% of the total improvement expenses in the year the installation was made up to a maximum of $1,200 and/or $2,000 for biomass stoves and boilers. If both were made in the same year, you can claim up to $3,200. There is no lifetime limit on this credit.
The credit is equal to 30% of the installation costs through 2032, 26% of the costs for 2033, and 22% for 2034. This credit has no annual limit and no lifetime limit, meaning you can claim the percentage based credit for each year you make qualifying green energy home improvements.
This credit is nonrefundable, cannot be carried forward, and could be worth up to $1,200 or $3,200 for improvements made through 2032; there are annual limits, but there is no lifetime dollar limit.
As a nonrefundable credit with no annual or lifetime limit, this credit can be carried forward. If you do not owe enough taxes in the year you claim it, carry it forward to a year in which you owe taxes.
The credit can be claimed for your main home (primary residence) located in the United States; it must be an existing home that you worked on, not a new home.
This credit can be claimed for your main home or primary residence, but it is also available to renters. The home must be an existing home - not new - located in the United States.
Additionally, the bill introduced the High-Efficiency Electric Home Rebate Act (HEEHRA) which may earn you a maximum rebate of $14,000:
- To be established on a state level, a program will verify residents' income eligibility for certain rebates on electrification projects to be issued at the point of sale.
- The credit amounts are composed of:
- Up to $1,750 for a heat pump water heater
- Up to $8,000 for a heat pump for space cooling or heating
- Up to $840 for an electric stove, cooktop, or oven; an electric heat pump clothes dryer.
- Non-appliance upgrades that also qualify:
- Up to $4,00 for an electric load service center upgrade (update their electrical panels)
- Up to $1,200 for insulation, ventilation, and air sealing
- Up to $2,500 for electric wiring.
- The credit per tax year is a maximum of $14,000 composed of the above thresholds.
- Taxpayers can claim:
- 100% of the cost if their income is less than 80% of their area's household median income
- 50% of the cost if their income is between 80%-150% of their area's household median income.
- Additionally, up to $500 may be able to be claimed for installation costs.
There are also various programs to be established to provide rebates and other aid to low- or moderate-income households as part of the HOMES rebate program - the bill provides $4.3 billion through 2031 to allow states to establish and carry out these rebate programs.
The Energy Efficient Commercial Buildings Deduction has also been extended and enhanced which primarily benefits homeowners or landlords who rent out their property.
Can I Get Credit for Making My Home Energy Efficient?
If you recently installed energy efficient improvements to your home, such as solar panels, you may be able to claim a credit for your investment. There are two federal energy tax credits currently available: the Residential Clean Energy Credit (formally the Residential Energy Efficient Property Credit) and the Energy Efficient Home Improvement Credit (formally the Nonbusiness Energy Property Credit). You may claim these nonrefundable tax credits on your return via Tax Form 5695 - the eFile.com tax app will generate this for you and eFileIT. Additionally, there are state-run, government funded programs as part of the High-Efficiency Electric Home Rebate Program to be established.
Related: best states to buy a home and retire in.
Let eFile.com help you if you're confused about energy efficient home improvement tax credits. When you prepare and e-file your return on eFile.com, the eFile app will select Form 5695 for you based on your answers to several tax questions. We will also report any credits on your return if you qualify for them. Read on if you want more detailed information on home energy tax credits. Publication 530 will have more important homeowner tax related information.
Residential Clean Energy Credit
If you made energy saving improvements to your home by installing an earth-friendly energy source, you may be able to claim the Residential Energy Efficient Property Credit (that's a long name for a good credit!) for a percentage of your total cost you paid. For most types of property, there is no dollar limit on the credit. However, if your credit is more that your taxes owed, you can carry over your unused portion of the credit to your tax return for next year. The percentage amount varies based on the date you placed the service in your home.
- 30%: After December 31, 2016, but before January 1, 2020 - previous tax years
- 26%: After December 31, 2019, but before January 1, 2022 - previous tax years
- 30%: After December 31, 2021, but before January 1, 2033
- 26%: After December 31, 2032, but before January 1, 2034
- 22%: After December 31, 2033, but before January 1, 2035.
These credits can be claimed on this year's return or a previous year tax return based on the percentages above. If you did not claim these credits when you filed, see how to amend your previous year return.
For the Clean Energy Credit, the following properties must have been placed in service through December 31 of the year to be claimed for the credit:
- Solar electric, such as solar panels
- Solar water heating
- Small wind energy
- Geothermal heat pump
- Fuel cell (up to $500 for each 1/2 kilowatt of the property's capacity; if more than one person occupied the home, then the combined credit for all residents is limited to $1,667 for each half kilowatt).
Here is more detailed information on the solar related tax credits.
If you assume a solar loan or inherit, purchase, and move into a home with a solar PV system that you then begin paying for, then you may be eligible to claim the credit if the original builder did not claim it.
In order to qualify for the credit, the energy-saving improvements must have been made to your main home located in the United States that you own - renting does not qualify. This is for existing homes, not newly built homes.
To claim the Residential Clean Energy Credit on your tax return, file your return on eFile.com and we will prepare and help complete Form 5695 with your return.
To claim for a previous year, see this page on back taxes and how to file a tax amendment.
Energy Efficient Home Improvement Credit (Formally Nonbusiness Energy Property Credit)
This tax credit is available now and for future years as described at the beginning of this page. If you did not claim the credit on a previous year return, you will need to prepare and file an amended tax return. For your current year return, claim the Residential Clean Energy Credit or the Energy Efficient Home Improvement Credit via Form 5695 and eFileIT.
If you made certain energy-saving or energy-efficient home improvements, you could get a tax credit for your expenses. Note: for a married couple filing separate returns for separate properties, you can file two forms and claim the credit for each property.
For 2022 and prior, this energy efficient home credit is only available to those taxpayers who did not claim more than $500 worth of home energy tax credits in an earlier year or $200 for windows. For 2023 and future years, there is no lifetime limit or cap.
In order to claim this energy credit on your return, you must have purchased the qualified improvements and placed them into service during the appropriate tax year. To qualify for the credit, the energy-saving improvements must have been made on an existing home - not a new construction - that was your primary residence which you owned. The home must also be located in the United States.
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You will need to provide tax documents to prove that you qualify for the credit. You should have written certification from the manufacturer that produces the qualifying product. This certification is usually included with the product's packaging or posted on the manufacturer's website. Though you can report the information on your tax return, do not include the original documentation in your return; keep it with your tax records.
Home Improvements that May Qualify for the Credit
Here are the various energy-efficient products which may qualify for the credit and the maximum amount that can be claimed for each:
- $2000 for heat pumps; air source heat pumps; biomass stoves and boilers
- $600 for any single energy property item
- For example, advanced main air circulating fans; central air conditioning; hot-water boilers, furnaces, or electric heat pump water heaters fueled by gas, propane, or oil; insulation materials, metal or asphalt roofing.
- $600 for windows or skylights
- $500 for exterior doors at $250 per door
- $150 for energy audits.
Remember that only $1,200 of all combined qualified costs may be credited per year, excluding biomass stoves, water heaters, and/or heat pumps powers by electricity or natural gas which are capped at $2,000. If you have both expenses, you can claim up to $3,200.
Other Ways to Save on Home Improvements
If you are interested in saving on eco-friendly lifestyle choices or investments, see electric vehicle or car tax credits.
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