Energy-Efficient Home Tax Credits

Energy-Efficient Home Tax Credits

The 2022 Inflation Reduction Act extends and expands tax credits for energy-efficient home improvements for individual homeowners.

The Non-Business Energy Property Credit, which expired in 2021, is extended through the end of 2032 under a new name, the Energy Efficient Home Improvement Credit. If you are planning on making any home improvements between now and 2032 that will improve your home’s energy efficiency, you may be eligible for energy-efficient home tax credits.

Energy Efficient Home Improvement Credit

The Energy Efficient Home Improvement Credit is available to individuals who make qualified energy efficiency improvements and energy property expenditures.

  • A qualified energy efficiency improvement includes any building envelope components such as insulation materials, certain roofs or roof products, and exterior windows, skylights, and doors.
  • A qualified residential energy property expenditure includes furnaces and certain fans, water heaters, certain heat pumps, and biomass stoves.

Starting in 2023 the credit is equal to 30% of the costs for all eligible home improvements made during the year. A limit on the credit is set at $1,200 per year for energy-efficient improvements and $2,000 for residential energy property expenditures. Homeowners may choose to spread out their home improvements to qualify for the maximum credit each year.

Annual Limits

Also specified in the 2022 Inflation Reduction Act are annual limits for each qualifying home improvement. Beginning in 2023 the limits will be:

  • $150 for home energy audits
  • $250 for an exterior door ($500 total for all exterior doors)
  • $600 for exterior windows and skylights; central air conditioners; electric panels and certain related equipment; natural gas, propane, or oil water heaters; natural gas, propane, or oil furnaces or hot water boilers
  • $2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and boilers (for this one category, the $1,200 annual limit may be exceeded)

Residential Clean Energy Credit

Previously known as the Residential Energy Efficient Property Credit, now the Residential Clean Energy Credit has also been updated and extended to 2034. The credit amount is initially set at 30% of the cost to install qualifying systems that use solar, wind, geothermal, or fuel cell power to produce electricity, or regulate your home’s temperature. The credit also applies to battery storage technology with a capacity of at least three-kilowatt hours, however, it no longer applies to biomass furnaces and water heaters.  The credit will reduce to 26% for 2033 and 22% for 2034 before expiring at the end of 2034.

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High-Efficiency Electric Home Rebates

Aside from these energy-efficient home tax credits, the High-Efficiency Electric Home Rebate Program has also been implemented to help families implement energy-saving tactics. The program is designed to benefit low- and middle-income families by providing rebates on purchases of energy-efficient electric appliances. The family’s total annual income must be less than 150% of the median income where you live, to qualify for the rebate.

Maximum rebates for qualifying electric appliances are as follows:

  • $1,750 for a heat pump water heater
  • $8,000 for a heat pump for space heating or cooling
  • $840 for a stove, cooktop, range, oven, or heat pump clothes dryer

Some non-appliance upgrades also qualify for a rebate:

  • $1,600 for insulation, air sealing, and ventilation
  • $2,500 for electric wiring
  • $4,000 for an electric load service center upgrade

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