The Internal Revenue Service (IRS) reminds taxpayers that making energy-efficient updates to their homes can qualify them for home energy credits. Expanded by the Inflation Reduction Act of 2022, these credits provide significant incentives for homeowners to invest in energy improvements.
Taxpayers can claim the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit in the year they make qualifying expenditures. Homeowners who improve their primary residence have the most opportunities to claim these credits, but renters and second-home owners who use them as residences can also benefit. However, landlords are not eligible.
Homeowners making qualified energy-efficient improvements after January 1, 2023, may qualify for a tax credit of up to $3,200. The credit equals 30% of certain qualified expenses, such as:
- Qualified Energy Efficiency Improvements: Exterior doors, windows, skylights, insulation, and air sealing materials or systems.
- Residential Energy Property Expenses: Natural gas, propane, oil water heaters, furnaces, hot water boilers, heat pumps, water heaters, biomass stoves, and boilers.
- Home Energy Audits: Audits conducted for the main home.
The maximum annual credit is $1,200 for energy property costs and certain improvements, with specific limits for doors ($250 per door, $500 total), windows ($600), and home energy audits ($150). There is a $2,000 annual limit for qualified heat pumps, biomass stoves, or boilers.
This credit is nonrefundable, meaning it cannot exceed the amount of taxes owed and any excess credit cannot be carried forward to future tax years.
Residential Clean Energy Credit
Taxpayers investing in clean energy improvements for their main home can qualify for an annual residential clean energy tax credit. This credit covers 30% of the costs for new qualified clean energy property installed from 2022 through 2032. Eligible expenses include:
- Solar Electric Panels and Water Heaters
- Wind Turbines
- Geothermal Heat Pumps
- Fuel Cells
- Battery Storage Technology (starting in 2023)
To qualify, solar water heaters must be certified by the Solar Rating Certification Corporation or an equivalent state-endorsed entity. Geothermal heat pumps must meet Energy Star requirements at the time of purchase, and battery storage technology must have a capacity of at least 3-kilowatt hours.
This credit has no annual or lifetime dollar limit except for fuel cell property. It is non-refundable, but taxpayers can carry forward any excess unused credit to future tax years.
Taxpayers should review the requirements and qualifications on IRS.gov/homeenergy before purchasing energy-efficient equipment. When filing a tax return, Form 5695, Residential Energy Credits, must be used to claim these credits. The credit is claimed for the tax year when the property is installed, not just purchased.
Taxpayers are encouraged to keep thorough records of their purchases and expenses. Good recordkeeping will ensure that all applicable credits can be claimed during tax filing season.
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