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Home Energy Tax Credits: Do You Qualify?

By: Chaim Fine

If you updated your home in 2022 or 2023 to be more energy efficient, you might be eligible for one or more tax credits. Tax credits are an excellent way to reduce your tax liability.

What’s more, the Inflation Reduction Act of 2022 expanded qualifying expenses and tax credit amounts for home energy tax credits.

Let’s look at two specific tax credits ― the Energy Efficient Home Improvement Credit and Residential Clean Energy Credit ― you might be able to claim.

How These Home Energy Tax Credits Work

You can claim these tax credits for the year in which you incurred expenses for qualifying energy-efficient improvements.

The greatest opportunity is for homeowners who make energy-efficient improvements to their primary residence. While owners of second homes and renters might be able to claim these tax credits, landlords cannot claim them.

Energy Efficient Home Improvement Credit

The Energy Efficient Home Improvement Credit is for taxpayers who make a qualified improvement to their home after January 1, 2023.

This credit equals 30% of certain qualified improvements, up to $3,200 for the tax year the improvements are made. 

Qualifying expenses include, but are not limited to:

  • Exterior doors, windows, insulation and air sealing materials

  • Natural gas, propane or oil water heaters

  • Central air conditioning systems

  • Heat pumps, water heaters, biomass stoves and boilers

  • Home energy audits of a primary home

This credit is not available for newly constructed homes. In addition, the credit is nonrefundable. This means you cannot get back more from the credit than what you owe in taxes. Furthermore, you cannot carry forward any excess credit to future tax years. 

Residential Clean Energy Credit

The Residential Clean Energy Credit is for taxpayers who invest in “clean energy” improvements for their main home (existing or new). Clean energy improvements typically involve solar, wind, geothermal, fuel cells or battery storage.

This tax credit equals 30% of the costs of new, qualified clean energy property for a home in the U.S. These improvements can be installed anytime between 2022 and 2033. 

Qualifying expenses include, but are not limited to:

  • Solar electric panels

  • Solar water heaters

  • Wind turbines

  • Geothermal heat pumps

  • Fuel cells

  • Battery storage technology (beginning in 2023)

To qualify for the Residential Clean Energy Credit, your clean energy equipment must meet the following standards:

  • Geothermal heat pumps must meet Energy Star requirements in effect at the time of purchase

  • Battery storage technology must have a capacity of at least three kilowatt hours

  • Solar water heaters must be certified by the Solar Rating Certification Corporation or a comparable organization endorsed by the applicable state

You can claim the Residential Clean Energy Credit for every tax year you install qualified clean energy property until the credit begins to phase out in 2033. There is no annual or lifetime dollar limit for this tax credit, except for fuel cell property.

This credit is nonrefundable, which means the credit amount received cannot exceed the amount owed in tax. Unlike the Energy Efficient Home Improvement Credit described above, you are allowed to carry forward any excess unused credit and apply it to tax owed in future years. 

Keep Good Records of Qualifying Expenses

Keep good records of your qualified purchases and expenses as you make home improvements. This will help in claiming tax credits when you or your CPA files your taxes. 

Additional Resources from the IRS

Need Help?

If you need help determining whether you might qualify for these tax credits, contact us here or call 800.899.4623.

 

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