The Internal Revenue Service (IRS) has reminded taxpayers that certain energy-efficient updates to their homes can make them eligible for home energy credits. Thanks to the Inflation Reduction Act of 2022, these credit amounts and types of qualifying expenses have been expanded, offering taxpayers new opportunities to reduce their tax liabilities while contributing to energy efficiency.
Key Points to Know
Taxpayers can claim the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit in the year they make qualifying expenditures. Homeowners, renters, and owners of second homes used as residences can potentially benefit, while landlords are excluded from claiming these credits. Detailed information and requirements can be found on IRS.gov/homeenergy and energy.gov, which compare credit amounts for tax years 2022 and 2023-2032.
Energy Efficient Home Improvement Credit
Taxpayers who make qualified energy-efficient improvements to their homes after January 1, 2023, can qualify for a tax credit of up to $3,200. This credit is part of the Inflation Reduction Act and covers 30% of certain qualified expenses, including:
- Qualified Energy Efficiency Improvements:
- Exterior doors, windows, and skylights.
- Insulation and air sealing materials or systems.
- Residential Energy Property Expenses:
- 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 annual credit includes:
- $1,200 for energy property costs and certain energy-efficient home improvements, with specific limits:
- Doors: $250 per door, $500 total.
- Windows: $600.
- Home energy audits: $150.
- $2,000 for qualified heat pumps, biomass stoves, or biomass boilers.
This credit is nonrefundable, meaning it cannot exceed the taxpayer’s owed taxes, and any excess cannot be carried forward to future tax years.
Residential Clean Energy Credit
Homeowners investing in clean energy improvements for their main homes, such as solar, wind, geothermal, fuel cells, or battery storage, can qualify for an annual residential clean energy tax credit. This credit equals 30% of the costs of new, qualified clean energy property installed in the U.S. from 2022 through 2032.
Qualified expenses include:
- Solar electric panels.
- Solar water heaters.
- Wind turbines.
- Geothermal heat pumps.
- Fuel cells.
- Battery storage technology (beginning in 2023).
Clean energy equipment must meet specific standards to qualify:
- 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 at the time of purchase.
- Battery storage technology must have a capacity of at least 3 kilowatt hours.
This credit is nonrefundable but can be carried forward to offset future tax liabilities.
Filing and Recordkeeping
When filing a tax return, taxpayers should use Form 5695, Residential Energy Credits, to claim these credits for the year the property is installed, not just purchased. Good recordkeeping of purchases and expenses is crucial for claiming these credits during tax filing season.
Additional Resources
- Publication 5967, Energy Efficient Home Improvements Credit (25C) PDF
- Publication 5968, Residential Clean Energy Credit (25D) PDF
- Energy.gov Credit Comparison Chart
- Fact Sheet: Frequently Asked Questions about Energy Efficient Home Improvements and Residential Clean Energy Property Credits PDF
By making energy-efficient updates, taxpayers can not only reduce their energy costs but also benefit from significant tax credits, contributing to a more sustainable future.