Taxpayers can save in tax by making certain energy efficient upgrades to their homes. The Inflation Reduction Act of 2022 expanded the credit amounts and types of qualifying expenses. Taxpayers can claim the Residential Clean Energy Credit and the Energy Efficient Home Improvement Credit for the year the qualifying expenditures are made.
It is important to note that landlords cannot claim this credit. Homeowners who improve their primary will find advantages to claim the credit for qualifying expenses. Renters may also be able to claim credits, as well as owners of second homes used as residences.
Taxpayers can go to irs.gov/homeenergy to review the requirements and qualifications prior to purchasing energy efficient equipment. Further information is also available at energy.org where there is a comparison between the credit amounts for tax year 2022 and tax year 2023.
Energy Efficient Home Improvement Credit
Taxpayers that make qualified energy-efficient improvements to their home after January 1, 2023, may qualify for a tax credit up to $3,200 for the tax year the improvements are made.
Beginning January 1, 2023, as part of the Inflation Reduction Act, the credit equals 30% of certain qualified expenses which include:
Residential energy property expenses such as:
- Central air conditioners.
- Natural gas, propane, or oil water heaters.
- Oil furnaces and hot water boilers.
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.
- Home energy audits of a main home.
- Heat pumps, water heaters, biomass stoves and boilers.
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 available only for qualifying expenditures to an existing home or for an addition or renovation of an existing home, and not for a newly constructed home. The credit is nonrefundable which means taxpayers cannot get back more from the credit than what is owed in taxes and any excess credit cannot be carried to future tax years.
Residential Clean Energy Credit
Taxpayers who invest in energy improvements for their principal home, including wind, solar, fuel cells or battery storage, geothermal may qualify for an annual residential clean energy tax credit. Taxpayers may also be able to claim credit for certain improvements other than fuel cell property expenditures made to a second home that they reside in part-time and do not rent to others.
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 2033.
Qualified expenses include the costs of new, clean energy equipment including:
- Solar water heaters.
- Wind turbines.
- Solar electric panels.
- 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:
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.
- Solar water heaters must be certified by the Solar Rating Certification Corporation, or a comparable entity endorsed by the applicable state.
The credit is available for qualifying expenditures incurred for installing new clean energy property in an existing home or for a newly constructed home. Except for fuel cell property, this credit has no annual or lifetime dollar limit. Taxpayers can claim this credit each tax year they install eligible property until the credit begins to phase out in 2033. The credit is nonrefundable. Taxpayers can carry forward the excess credit that is not used and apply it to any tax owed in future years.
Taxpayers can use Form 5695, Residential Energy Credits to claim the credit. The credit must be claimed for the tax year when the property is installed and not the year of purchase. Taxpayers should keep good records of purchases and expenses during the time the improvements are made.
Hiring a tax resolution expert is the best action a taxpayer could take in a tax matter before the IRS or a state tax authority.
We offer FREE initial consultation!!!