Tax Credits for Energy Efficient Home Improvements
Clean Energy and Efficiency Credits 2023
Introduced and signed in August of 2022, the Inflation Reduction Act or IRA brought forth and modified many green incentives, including changes to the EV tax credit for 2023 and beyond. 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. This includes the installation of solar panels, home battery storage, and other green energy properties. Here are the key points:
- The credit has been extended from Tax Year 2021 to last until Tax Year 2032.
- For most years, the credit will be equal to 30% of the amount paid for energy efficient improvements instead of phasing out earlier.
- The maximum amount of the 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.
- 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.
The Residential Clean Energy Credit replaces the Residential Energy Efficient Property Credit and is adjusted as follows:
- The credit is now applicable for Tax Year's 2023 - 2034.
- The amount of the credit depends on the year it was placed into service:
- Before January 1, 2022: 26%
- After December 31, 2021, but before January 1, 2033: 30%
- After December 31, 2032, but before January 1, 2034: 26%
- After December 31, 2033, but before January 1, 2035: 22%.
The Energy Efficient Commercial Buildings Deduction has also been extended and enhanced which primarily benefits homeowners or landlords who rent out their property.
As part of the new Energy Efficient Home Credit, now extended through December 31, 2032, the credit may be worth $2,500-$5,000 based on certain Energy Star criteria.
Additionally, the bill introduced the High-Efficiency Electric Home Rebate Program 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 $1,600 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.
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 for 2022 Tax Returns: the Residential Energy Efficient Property Credit (now the Residential Clean Energy Credit) and the Nonbusiness Energy Property Credit (now the Energy Efficient Home Improvement 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.
For 2022, the following properties must have been placed in service through December 31, 2022 to be claimed for the credit. These credits can be claimed on your 2022 or previous year tax returns (2017 - 2021) based on the percentages below. If you did not claim these credits when you filed, see how to amend your previous year return.
The installment in question must be put into service during a given tax year to be claimed on a return for that year. If you installed and put into service any of the following during 2022, you can claim it on your 2022 Tax Return:
- 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).
Here is more detailed information on the solar related tax credits.
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 Energy Efficient Property 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 (Important: these were updated to the figures at the top of this page):
- 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 - current and future tax years
- 26%: After December 31, 2032, but before January 1, 2034
- 22%: After December 31, 2033, but before January 1, 2035.
In order to qualify for the credit, the energy-saving improvements must have been made in a home located in the United States. You must own the home (rentals do not count), but it does not have to be your main home. The credit may also be claimed for newly constructed homes through 2022 and all installation costs may be included.
To claim the Residential Energy Efficient Property Credit on your tax return, prepare 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)
The tax credit has been extended for 2022 Tax Returns and then adjusted for 2023 and future years as described at the beginning of this page. If you did not claim the credit on your 2018 Tax Return or 2019 Tax Return, or other previous year, you will need to prepare and file an amended tax return. Claim the Energy Efficient Home Improvement Credit or Nonbusiness Energy Property Credit via Form 5695 and eFileIT.
If you made certain energy-saving or energy-efficient home improvements in 2022, you could get a tax credit for up to 10% of the purchase price of qualified products, up to a maximum total of $500 amount for all tax years after 2005. Note: for a married couple filing separate returns for separate properties, you can file two forms and claim up to $1,000. For windows, it's a $200 total maximum amount if installed during 2022. Some installation and labor costs also qualify for the credit.
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. If you received home energy credits from Tax Years 2005-2011, you must subtract the amounts you received from 2022's $500 "lifetime" credit cap (the lifetime cap is $200 for windows).
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 (Important: see the updated amounts at the top of this page):
- $300 for biomass stoves
- $50 for advanced main air circulating fans
- $300 for air source heat pumps
- $300 for central air conditioning
- $150 for gas, propane, or oil hot-water boilers
- $150 for gas, propane, or oil furnaces
- $300 for gas, propane, oil, or electric heat pump water-heaters
- $500 for energy-efficient doors (installation costs do not count)
- $500 for energy-efficient skylights (installation costs do not count)
- $200 for energy-efficient windows (installation costs do not count)
- $500 for insulation (installation costs do not count)
- $500 for metal or asphalt roofing (installation costs do not count).
Remember that only $500 of all combined qualified costs may be credited per year.
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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