Home Energy Tax Credits for Individuals

How homeowners can qualify for “green” tax credits

The Inflation Reduction Act (IRA) amended and enhanced the individual tax credits available for Energy Efficient Home Improvements (IRC Sec 25C) and Residential Clean Energy Property (IRC Sec 25D). See if your property meets the energy-efficiency standards set by the IRS.

Tax credits for energy efficient home improvements

Under Section 25C, individuals are allowed nonrefundable tax credits for Energy Efficient Home Improvements to their US residence for property placed in service after January 1, 2023, but prior to January 1, 2033, that meet certain energy-efficiency standards.

The credit is equal to 30% of the sum of:

1. The amount paid or incurred for qualified energy efficiency improvements installed during the tax year;
2. The amount of residential energy property expenditures (REPES) paid or incurred during the tax year; and
3. The amount paid or incurred during the tax year for home energy audits.

Based on the type of property installed, annual credit limits apply as follows:

1. $1,200 per taxpayer per year for building envelope components, home energy audits and energy property which include the following:
   1. $600 for credits for REPES (HVACs/water heaters/boilers), windows and skylights;
   2. $250 for any exterior door and $500 for all exterior doors
   3. $150 for home energy audits
2. Separate annual credit limit of $2,000 for specified heat pumps, heat pump water heaters and biomass stoves and boilers;

The maximum annual credit related to Energy Efficient Home Improvements per taxpayer amounts to $3,200. There are no lifetime limits under the new rules.

What documentation is needed to claim energy efficient home improvements credits?

To claim the credits, a taxpayer should get a certification from the manufacturer that the property qualifies for the credit. The manufacturer’s certification must contain the following information:

1. Manufacturer’s name and address;
2. The class of qualified energy property;
3. The make, model number and other identifying information;
4. A statement that the property is qualified energy property in accordance with IRS Notice 2009-53 and
5. A declaration signed by a person authorized to bind the manufacturer.

The manufacturer can provide this certification in writing with the property’s packaging, in printable form on the manufacturer’s website, or in any other manner that permits the taxpayer to retain the certification for tax recordkeeping purposes

To claim the tax credit for property placed in service after December 31, 2024, the manufacturer must provide a “qualified product identification number” for the property. No tax credits will be allowed on any property that does not have this number and it will be required to be reported on the taxpayer’s tax return beginning in 2025.

Tax credits for residential clean energy property

The IRS also allows credits for qualified expenses related to residential clean energy property which includes:

1. Qualified solar electric property;
2. Qualified solar water heating property (must be certified by the Solar Rating Certification Corp or comparable entity endorsed by your state);
3. Qualified fuel cell property;
4. Qualified small wind energy property;
5. Qualified geothermal heat pump property (must meet Energy Star Requirements), and;
6. Qualified battery storage technology (must have capacity of at least three kilowatt hours).

There is no dollar limit for residential clean energy expenses, however for all credits (except for qualified fuel cell property) the credit is limited to 30% of qualified expenditures for property installed and placed in service before January 1, 2033; 26% for property installed and placed in service during tax year 2033; and 22% for property installed and placed in service during tax year 2034. No credits are allowed after 2034 under this tax bill. Fuel cell property carries separate credit limits which are based on kilowatt capacity and number of residents in the home.

Qualified expenses include labor costs allocable to onsite preparation, assembly and original installation of the qualified property and for piping or wiring to connect the qualifying property to the home.

Additional requirements for energy efficient home and residential clean energy credits

To qualify for either energy efficient home improvements credits or residential clean energy property credits, qualified property must be installed at the taxpayer’s residence located in the United States. Improvements made to properties used solely for business purposes do not qualify for any credits.

It should be noted that some of the credits are only allowed if the qualifying property is installed in the taxpayer’s principal residence, while others allow for qualifying property to be installed in either the taxpayer’s principal or secondary residence. Additionally, certain credits are only allowed if installed in an existing home, while others can be installed in a new home.

Questions about claiming energy tax credits for your residence? Contact your Keiter Opportunity Advisor.