Improving energy efficiency in your home benefits not only the environment, but also your tax bill.
Provisions in the Inflation Reduction Act of 2022 provide federal income tax credits to homeowners through 2032, allowing them to save up to $3,200 annually and lower the cost of energy efficient home upgrades by up to 30 percent.
Homeowners may claim the Energy Efficient Home Improvement Credit for expenses related to the following, if they meet the requirements outlined by the U.S. Department of Energy:
Taxpayers can claim a percentage of the total expenses for the improvements in the year that they were installed. For upgrades put in place in 2023 through 2032, the credit amounts to 30 percent, up to a maximum of $1,200. However, heat pumps, biomass stoves, and boilers have a separate annual credit limit of $2,000. There is no lifetime dollar limit for the credit.
Beginning in 2025, there are some changes to the requirements for claiming the Energy Efficient Home Improvement credit. Starting this year, the Internal Revenue Service (IRS) will not allow taxpayers to claim the credit unless the item installed was produced by a qualified manufacturer. Taxpayers must then report the PIN for the item on their tax returns.
A newly modified and extended Residential Clean Energy Credit provides a 30 percent income tax credit for clean energy equipment installed any time from 2022 through 2032.
Taxpayers may claim the Residential Clean Energy Credit for expenses related to the following, if they meet the Department of Energy’s requirements:
As with the Energy Efficient Home Improvement Credit, the Residential Clean Energy Credit allows taxpayers to claim a percentage of the total expenses for the improvements in the year that they were installed. For upgrades made from 2022 through 2032, the credit amounts to 30 percent with no annual maximum or lifetime dollar limit. In 2033, this percentage decreases to 26 percent and in 2034, it decreases to 22 percent, still with no annual or lifetime limit.
Taxpayers may claim the Energy Efficient Home Improvement Credit for improvements to their main home, where they generally live most of the time. The home must be located in the United States and be an existing home that is improved or added onto; new homes do not qualify.
Taxpayers may claim the Residential Clean Energy Credit for improvements to their main home, regardless of whether they own or rent it. The credit applies to new and existing homes located in the United States.
For both credits, the home must be the taxpayer’s primary residence. Landlords and other property owners who do not live in the home cannot claim the credit.
Taxpayers can claim the federal tax credits by filing Form 5695, Residential Energy Credits with their tax return. The credit must be claimed for the tax year when the property is installed, not when it is purchased.
For additional information about federal tax credits for energy efficiency, contact our tax team.