There are two federal tax credits available for homeowners which can be considered when making improvements or upgrades to your home. In 2023, over $8 billion was claimed by more than one million taxpayers who made these additions to their home. This is a combination of both tax credits and is made up of over 750,000 solar panel installations, nearly 700,000 window installations, and many other energy-efficient or green improvements.
Did you recently invest in eco-friendly additions to your home? If so, you may be able to get credit for it on your next IRS income tax return! Follow the details below or read this Residential Clean Energy Property Credit fact sheet.
Can I Get Credit for Making My Home Energy Efficient?
If you recently made energy efficient improvements to your home or installed clean energy assets, such as solar panels, you may be able to claim a credit for your investment. There are two federal tax credits available which reduce your tax liability by allowing you to deduct a portion of the expenses incurred for these improvements from your taxes owed.
Claim your credit by filing an income tax return - use online tax programs to help fill out the needed energy credit form.
KEY TAKEAWAYS
- There are two federal credits available for making energy efficient home improvements: The Residential Clean Energy Credit and the Energy Efficient Home Improvement Credit.
- Common eligible improvements include solar panels, wind turbines, geothermal heat pumps, energy-efficient doors and windows, insulation, and energy-efficient HVAC systems. Always check current IRS guidelines to confirm eligibility.
- The credit amounts vary depending on the type of improvement. For example, installing solar energy systems can qualify for a credit of up to 30% of the installation cost while other improvements like energy-efficient windows have specific dollar limits.
- Taxpayers can claim the credit by completing Form 5695, Residential Energy Credits, and including it with their tax return. Keep detailed records of the improvements, including receipts and manufacturer certifications.
- If the Residential Clean Energy Credit exceeds the homeowner’s tax liability for the year, the unused portion can often be carried forward to future tax years. This means you can still benefit from the credit in years when you owe more taxes. This does not apply to the Energy Efficient Home Improvement Credit.
How Do Clean or Efficient Energy Credits Work?
The IRS offers two nonrefundable tax credits for home energy improvements: the Energy Efficient Home Improvement Credit for items like windows and insulation and the Residential Clean Energy Credit for solar panels and other green energy installations. There is also the Clean Vehicle Credit for electric vehicles.
- The credits generally cover 30% of energy improvement costs. For instance, an $18,000 solar PV system could yield a $5,400 credit.
- The Energy Efficient Home Improvement Credit has a maximum of $1,200 per year ($600 for general improvements, $600 for windows, $250-$500 for exterior doors, and a separate $2,000 limit for biomass stoves and boilers). The lifetime cap has been removed, allowing up to $3,200 annually.
- The Residential Clean Energy Credit has no annual or lifetime limit.
The Energy Efficient Home Improvement Credit, extended through December 31, 2032, may reach up to $3,200 based on:
- Energy Star program requirements
- Zero Energy Ready Home program requirements
- Prevailing wage requirements for multifamily units only.
What Is the Difference Between the Two Home Improvement Credits?
You may benefit by claiming one of these credits; below is a comparison of each credit's key points.
Energy Efficient Home Improvement Credit
Residential Clean Energy Credit
Used for: exterior doors, windows or skylights, insulation materials, central A/C systems, water heaters, a furnace, boilers, heat pumps, biomass stoves and boilers, and energy audits.
Used for: solar, wind, and geothermal power generators; solar water heaters, fuel cells, and battery storage systems.
Dollar value, calculation: the credit is equal to 30% of the total improvement expenses in the year the installation was made up to a maximum of $1,200 and/or $2,000 for biomass stoves and boilers. If both were made in the same year, you can claim up to $3,200. There is no lifetime limit on this credit.
Dollar value, calculation: the credit is equal to 30% of the installation costs through 2032, 26% of the costs for 2033, and 22% for 2034. This credit has no annual limit and no lifetime limit, meaning you can claim the percentage-based credit for each year you make qualifying green energy home improvements.
Limits and carry forward rules: this credit is nonrefundable, cannot be carried forward, and could be worth up to $1,200 or $3,200 for improvements made through 2032; there are annual limits, but there is no lifetime dollar limit.
Limits and carry forward rules: as a nonrefundable credit with no annual or lifetime limit, this credit can be carried forward. If you do not owe enough taxes in the year you claim it, carry it forward to a year in which you owe taxes.
Who can claim it: The credit can be claimed for your main home (primary residence) located in the United States; it must be an existing home that you worked on, not a new home.
Who can claim it: this credit can be claimed for your main home or primary residence, but it is also available to renters. The home must be an existing home - not new - located in the United States.
There is also the Energy Efficient Commercial Buildings Deduction which primarily benefits owners of commercial buildings.
How to Claim an Energy Tax Credit?
You may claim these nonrefundable tax credits on your return via Tax Form 5695 - the eFile Tax App will generate this for you and eFileIT. IRS Publication 530 will have more important homeowner tax information.
If you get this credit as a rebate, it is not included in your taxable income in any year.
Because this credit is nonrefundable, consider adjusting your withholding for the year of the purchase so you owe taxes when you file. This is the only way to claim the credit since it cannot be refunded to you.
Related article: best states to buy a home and retire in.
What Is the Residential Clean Energy Credit?
If you made energy saving improvements to your home by installing an earth-friendly energy source, you may be able to claim the Residential Energy Efficient Property Credit for a percentage of your total cost you paid. There is no dollar limit on the credit except for fuel cell properties. If your credit is more that your taxes owed, you can carry over your unused portion of the credit to your tax return for next year.
You can claim a percentage of your expenses for the property or asset .
- 30%: After December 31, 2016, but before January 1, 2020 - previous tax years
- 26%: After December 31, 2019, but before January 1, 2022 - previous tax years
- 30%: After December 31, 2021, but before January 1, 2033
- 26%: After December 31, 2032, but before January 1, 2034
- 22%: After December 31, 2033, but before January 1, 2035.
This credit can be claimed on this year's return or a previous year tax return based on the percentages above. If you did not claim it when you filed, see how to amend your previous year return.
The following properties must have been placed into service through December 31 of the year to be claimed for the credit:
- Solar electric, such as solar panels
- Solar water heating
- Small wind energy
- Geothermal heat pump
- Fuel cell (up to $500 for each 1/2 kilowatt of the property's capacity; if more than one person occupied the home, then the combined credit for all residents is limited to $1,667 for each half kilowatt).
Here is more detailed information on the solar related tax credits. Solar panels need to be on your property - likely on your roof, but this is not a requirement - and you can be either on or off the grid to claim the credit.
Who Can Claim the Clean Energy Credit?
This credit is available for homeowners with some exceptions; claim it for your existing primary residency or a vacation home located in the United States, but not a rental home that you do not live in - you may be able to claim a business credit for that. You can claim this credit if you purchase the system or asset in full or if you finance it.
If you assume a solar loan or inherit, purchase, and move into a home with a solar PV system that you begin paying for, then you may be eligible to claim the credit if the original builder did not claim it.
If you are interested in clean energy, you may also consider purchasing an electric vehicle which has its own tax credit. See more on this topic: how to claim the $7,500 EV tax credit.
What Is the Energy Efficient Home Improvement Credit?
If you made certain energy-saving or energy-efficient home improvements, you could get a tax credit for your expenses. Note: for a married couple filing separate returns for separate properties, you can file two forms and claim the credit for each property.
For 2022 and prior, this energy efficient home credit is only available to those taxpayers who did not claim more than $500 worth of home energy tax credits in an earlier year or $200 for windows. For current and future years, there is no lifetime limit or cap.
In order to claim this energy credit on your return, you must have purchased the qualified improvements and placed them into service during the appropriate tax year.
To qualify for the credit, the energy-saving improvements must have been made on an existing home in the United States - not a new construction - that was your primary residence which you owned.
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You should receive written certification from the manufacturer that produces the qualifying product. This certification is usually included with the product's packaging or posted on the manufacturer's website.
When you e-file, you do not need to submit your proof or other documents, but you will want to keep them for your records.
What Home Improvements Qualify for the Credit?
Here are the various energy-efficient products which may qualify for the credit and the maximum annual amount that can be claimed for each:
- $2,000 for heat pumps; air source heat pumps; biomass stoves and boilers
- $600 for any single energy property item
- For example: advanced main air circulating fans; central air conditioning; hot-water boilers, furnaces, or electric heat pump water heaters fueled by gas, propane, or oil; insulation materials, metal or asphalt roofing.
- $600 for windows or skylights
- $500 for exterior doors at $250 per door
- $150 for energy audits.
Remember that only $1,200 of all combined qualified costs may be credited per year, excluding biomass stoves, water heaters, and/or heat pumps powers by electricity or natural gas which are capped at $2,000. If you have both expenses, you can claim up to $3,200.
Other Ways to Save on Home Improvements
- Other tax breaks or deductions available to homeowners.
- See a detailed list of federal tax credits.
- Review tax deductions you might qualify to claim on your tax return.
- Read tax-related homeowner Information.
Are there State Home Improvement Credits?
In many states, a rebate is available for green energy purchases and some utility companies provide payments as well. If you receive a subsidy from your utility to install clean energy systems, then this payment generally reduces the amount of money you spent on your system for purposes of calculating the credit.
A rebate or credit from your state would generally not reduce the credit, but may be included in your total taxable income.
The High-Efficiency Electric Home Rebate Act (HEEHRA) may earn you a maximum rebate of $14,000. These programs are state-based and may be available depending on where you live; they are claimed at the point of sale rather than on a tax return.
- The state program will verify residents' income eligibility for certain rebates on electrification projects to be issued at the point of sale.
- Love income households can claim it for 100% of the costs of electrification projects; moder-income households can claim 50%.
- The credit amounts are composed of:
- Up to $1,750 for a heat pump water heater
- Up to $8,000 for a heat pump for space cooling or heating
- Up to $840 for an electric stove, cooktop, or oven; an electric heat pump clothes dryer.
- Non-appliance upgrades that also qualify:
- Up to $4,000 for an electric load service center upgrade (electrical panel or breaker box upgrades)
- Up to $2,500 for electric wiring
- Up to $1,200 for insulation, ventilation, and air sealing
- Up to $1,600 in weatherization (windows, insulation).
- The credit per tax year is a maximum of $14,000 composed of the above thresholds.
- Taxpayers can claim:
- 100% of the cost if their income is less than 80% of their area's household median income (low-income)
- 50% of the cost if their income is between 80%-150% of their area's household median income (moderate-income).
- Additionally, up to $500 may be able to be claimed for installation costs.
These programs provide rebates and other aid to low- or moderate-income households as part of the HOMES rebate program - the bill provides $4.3 billion through 2031 to allow states to establish and carry out these rebate programs.
If you are interested in saving on eco-friendly lifestyle choices or investments, see electric vehicle or car tax credits and learn how to use less electricity.
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