Home Improvements and Home Energy Credits

With summer on our doorstep, the thoughts of many people go to home improvements that should be done now that the weather is improving. If this sounds like you, you should be aware that certain energy efficient updates to your home could qualify you for home energy credits.

What you need to know

You can claim the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit for the year that qualifying expenditures are made.

Homeowners who improve their primary residence will find the most opportunities to claim a credit for qualifying expenses. Renters may also be able to claim credits, as well as owners of second homes used as residences. Landlords cannot claim this credit.

Energy Efficient Home Improvement Credit

If you make qualified energy-efficient improvements to your home after Jan. 1, 2023, you may qualify for a tax credit up to $3,200.

As part of the Inflation Reduction Act, beginning Jan. 1, 2023, the credit equals 30% of certain qualified expenses:

  • Qualified energy efficiency improvements installed during the year which can include things like:
    • Exterior doors, windows and skylights.
    • Insulation and air sealing materials or systems.
  • Residential energy property expenses such as:
    • Natural gas, propane or oil water heaters.
    • Natural gas, propane or oil furnaces and hot water boilers.
  • Heat pumps, water heaters, biomass stoves and boilers.
  • Home energy audits of a main home.

The maximum credit that can be claimed each year is:

  • $1,200 for energy property costs and certain energy efficient home improvements, with limits on doors ($250 per door and $500 total), windows ($600) and home energy audits ($150).
  • $2,000 per year for qualified heat pumps, biomass stoves or biomass boilers.

The credit is nonrefundable which means you cannot get back more from the credit than you owe in taxes and any excess credit cannot be carried to future tax years.

Residential Clean Energy Credit

If you invest in energy improvements for your main home, including solar, wind, geothermal, fuel cells or battery storage, you may qualify for an annual residential clean energy tax credit.

The Residential Clean Energy Credit equals 30% of the costs of new, qualified clean energy property for a home in the United States installed anytime from 2022 through 2032.

Qualified expenses include the costs of new, clean energy equipment including:

  • Solar electric panels.
  • Solar water heaters.
  • Wind turbines.
  • Geothermal heat pumps.
  • Fuel cells.
  • Battery storage technology (beginning in 2023).

Clean energy equipment must meet the following standards to qualify for the Residential Clean Energy Credit:

  • Solar water heaters must be certified by the Solar Rating Certification Corporation or a comparable entity endorsed by the applicable state.
  • 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 3 kilowatt hours.

This credit has no annual or lifetime dollar limit except for fuel cell property. You can claim this credit every year you install eligible property on or after Jan. 1, 2023, and before Jan. 1, 2033.

This is a nonrefundable credit, which means the credit amount received cannot exceed the amount you owe in tax. You can carry forward excess unused credit and apply it to any tax owed in future years.

This article carries no official authority, and its contents should not be acted upon without professional advice. For more information about this topic, please contact our office.

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