Homeowners who make energy-efficient improvements to their homes after January 1, 2023, can avail of tax credits up to $3,200, with specific credit amounts based on the type of improvement. This initiative aims to encourage energy efficiency and sustainability in residential properties.
Energy Efficient Home Improvement Credit:
- If homeowners make qualified energy-efficient improvements to their homes after January 1, 2023, they may qualify for a tax credit of up to $3,200. This credit can be claimed for improvements made through TY2032.
- For improvements installed in TY2022 or earlier, individuals should use previous versions of Form 5695. The old rules apply.
- Starting January 1, 2023, the credit is 30% of certain qualified expenses. These include:
- Qualified energy efficiency improvements installed during the year
- Residential energy property expenses
- Home energy audits
- There are specific limits on the credit for various improvements:
- A maximum of $1,200 annually for energy property costs and specific energy-efficient home improvements. This includes caps of $250 per door (up to $500), $600 for windows, and $150 for home energy audits.
- $2,000 annually for qualified heat pumps, biomass stoves, or biomass boilers.
- This credit has no lifetime dollar limit. Therefore, homeowners can claim the maximum annual credit every year they make eligible improvements until 2033. However, it's essential to note that the credit is nonrefundable, meaning it will not pay more than one owes in taxes.
In the past, through December 31, 2022, the energy-efficient home improvement credit was a $500 lifetime credit. But after the amendments made by the Inflation Reduction Act of 2022 (IRA), the annual credit has been increased upwards to $1,200 starting from January 1, 2023.
Eligible expenses for the Energy Efficient Home Improvement Credit include (but are not necessarily limited to) exterior doors, windows, skylights, insulation materials, central air conditioners, water heaters, furnaces, boilers, heat pumps, biomass stoves, boilers, and home energy audits.
For the credit to be applicable, improvements must be made on homes used as residences. The credit is available for specific improvements made to second homes but not for homes not used as a residence by the taxpayer.
Landlords cannot use these credits for homes they rent out but do not use as a residence.
If taxpayers rent a home as their primary residence and make eligible improvements, they might qualify for a tax credit.