Thinking about making your home more energy-efficient? The good news is that the IRS offers tax credits to help offset the cost of upgrades, saving you money on your taxes and energy bills. These credits are designed to make sustainable improvements more affordable, from installing solar panels to enhancing insulation, all while promoting a greener future. Two key programs, the Residential Clean Energy Credit and the Energy Efficient Home Improvement Credit, offer significant savings opportunities. In the following sections, we’ll explore these credits in detail, outlining their benefits, eligibility requirements, and how homeowners can maximize their savings.

Residential Clean Energy Credit

Previously known as the Residential Energy Efficient Property Credit, this incentive provides homeowners with a significant tax credit of 30% of the costs for qualifying clean energy improvements. Eligible upgrades include solar electric systems, solar water heating systems, small wind energy systems, geothermal heat pumps, battery storage technology, and fuel cell property. The credit is available for properties that installed these services between 2022 and 2032, making it an excellent opportunity for homeowners to invest in sustainable energy solutions. In addition to the equipment cost, the credit also covers associated labor costs for installation, allowing homeowners to claim a more significant portion of their overall investment. This credit not only helps reduce upfront costs but also supports long-term savings on energy bills.

Energy Efficient Home Improvement Credit

Formerly known as the Nonbusiness Energy Property Credit, the Energy Efficient Home Improvement Credit has been expanded to include a wider range of home upgrades. It covers two main categories: Qualified Energy Efficiency Improvements, such as insulation, exterior doors, windows, and skylights, and Residential Energy Property Expenditures, which include items like central air conditioners, water heaters, furnaces, and heat pumps. The credit is capped at $1,200 per year, with specific limits—$600 for windows and $250 for exterior doors. Additionally, certain high-efficiency items like heat pumps, biomass stoves, and biomass boilers have their own annual credit limit of $2,000, allowing for even greater savings.

Home Energy Audits

A home energy audit, now included under the Energy Efficient Home Improvement Credit, provides homeowners with a valuable way to identify energy-saving opportunities while qualifying for a tax credit. Conducted by a certified energy auditor, the audit evaluates the home and recommends cost-effective improvements to boost energy efficiency. Homeowners can claim a credit of up to $150 for the audit, making it a good starting point for reducing energy costs and exploring additional credits. To qualify for these credits, it’s important to keep the auditor’s report, which outlines suggested upgrades, and to complete Form 5695 when filing taxes accurately.

Compliance and Documentation Requirements

To qualify for these tax credits, homeowners must ensure that their upgrades meet specific energy efficiency standards, such as those established by the International Energy Conservation Code (IECC) or the ENERGY STAR program. These standards ensure that the improvements genuinely enhance energy efficiency and align with the credit’s purpose. Additionally, eligible product manufacturers must register as qualified manufacturers and assign unique Product Identification Numbers (PINs) to their products. These PINs verify that the property meets the necessary standards and help prevent fraudulent claims. Homeowners should verify that their chosen products meet these criteria and retain all relevant documentation to support their claims when filing for the credit.

Wrap-Up

These tax credits offer great opportunities for homeowners to make energy-efficient improvements and reduce their overall tax liability. Not only can these upgrades help lower energy bills, but they also contribute to a more sustainable home and a smaller environmental footprint. To make the most of these incentives, it’s essential to ensure that any improvements meet the required standards and that all documentation is in order.

Additionally, keep in mind that the credit is capped each year. For tax planning purposes, homeowners should consider staggering their upgrades over multiple years to maximize the benefits. By spreading out improvements, such as installing solar panels one year and upgrading insulation the next, homeowners can make the most of these incentives without exceeding the annual cap. By carefully planning and taking full advantage of these tax benefits, you can boost your home’s efficiency, save money in the long run, and invest in a greener, more cost-effective future.

Hayley Bales

Marketing Communication Specialist

Protection Plus

References

IRS. "Residential Clean Energy Credit." -https://www.irs.gov/credits-deductions-for-individuals.

IRS. "Energy Efficient Home Improvement Credit." https://www.irs.gov/credits-deductions-for-individuals.

IRS. "Energy Efficient Home Improvement Credits—Qualified Products." https://www.irs.gov/credits-deductions-for-individuals.