Tax Credits Now Available for Energy Efficient Home Improvements

Starting from January 1, 2023, all the way through 2032, certain energy efficient improvements you make to your home can qualify for a tax credit up to $3,200 annually. Under the Inflation Reduction Act signed into law last year, new incentives were created to kick the clean energy movement into high gear and reward households who go green. These tax credits were designed to encourage Americans to improve the efficiency of energy in their homes, which will ultimately reduce energy costs on the individual and on a national scale.

Beyond the new tax incentives, there are many benefits to adding green improvements to your home. Eco-friendly products and systems are cost-effective, lowering expenses by wasting less energy and requiring little maintenance. They create a healthier indoor quality of life, are efficient and durable, and ultimately better for the environment. If low costs and environmental impact are among your priorities, seeking out these tax credits is a great way to achieve them.

First, the home improvements must be made to your primary residence located within the United States. New homes do not qualify; it must be an existing home that you upgrade or add onto. Second, any improvements made must use new systems and materials that meet energy efficiency standards. Standards vary depending on the product or component.

There are several different energy-saving projects that can improve your home and save you money on your energy bills and tax returns. Rooftop solar panels, efficient water heaters, windows, doors, and air conditioners are just a few examples. Types of installations or replacements that qualify for tax credit under the Inflation Reduction Act include:

Home Clean Electricity Products

• Solar panels for electricity
• Home back-up power battery storages (3 kWh or greater)

Building Envelope Components

• Exterior doors, windows, and skylights (must meet Energy Star requirements)
• Insulation and air sealing materials or systems (must meet International Energy Conservation Code standards)

These products must also have an expected lifespan of at least 5 years, and credit limits can vary. Labor costs for the installation of these components do not qualify.

Residential Energy Property

• Central air conditioners
• Natural gas, propane, or oil water heaters
• Natural gas, propane, or oil furnaces and hot water boilers

These installations qualify for credit up to $600 per item and must meet the Consortium for Energy Efficiency (CEE) highest efficiency tier.

Electrical components needed to support these installations also qualify for credit as long as they meet the National Electric Code and have a capacity of 200 amps or more. Qualifying components include:

• Panelboards and sub-panelboards
• Branch circuits
• Feeders

Heat Pumps and Biomass Stoves and Boilers

These must have a thermal efficiency rating of at least 75% to qualify for credit up to $2,000.

• Electric or natural gas heat pumps
• Electric or natural gas heat pump water heaters
• Biomass stoves and boilers

For more information on the codes, standards, and qualifications for the products above, talk to your local installation technicians or visit the IRA's information page.

To claim the credit for your improvements, all you need to do is verify that your project meets its designated requirements, then file Form 5695, Residential Energy Credits Part II, with your tax return. Make sure you file the claim for the tax year when your components were installed, not purchased.

If you're not sure where to start or what improvement projects to invest in, consider having a home energy audit done.

A home energy audit involves an energy assessor analyzing your energy bills and doing an inspection of your house to detect health, safety, and energy waste issues. Upon completion of an energy assessment, you will be given a report stating which energy efficiency upgrades are best for your home and financial situation.

This is the ideal first step to take to begin upgrading your energy efficiency. Not only will it lower your energy costs, but it will also increase the longevity and cleanliness of your energy usage.

Home energy audits also now qualify for tax credit up to $150, as long as they are completed by a certified auditor who provides a signed written report of their findings following the inspection. Find a qualified auditor near you and start your home energy improvement journey today!