Did you know that the federal government has several programs in place to incentivize homeowners to make energy-efficient upgrades? These projects aim to reduce energy consumption, lower your utility bills, and promote environmental sustainability.
But keep in mind that these incentives change over time. This year, they’ve been expanded and extended, to help you save even more. In this blog, we’ll go over everything you need to know about home energy credits, to help your home be more environmentally friendly, and put money back in your pocket.
Home Energy Credits At a Glance
As the name suggests, home energy credits are designed for homeowners. They’re tax incentives designed to encourage you to invest in energy-efficient improvements, or those using renewable energy. Essentially, these are the government’s way of rewarding you for green upgrades that use less energy and promote environmental sustainability. They include the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit.
The former covers 30% of the cost of qualified energy-efficient improvements. Qualified improvements include exterior doors, windows and skylights. The credit also covers insulation materials, central air conditioners, water heaters furnaces, and boilers. And it covers home energy audits.
The Residential Clean Energy Credit (previously called the Residential Energy Efficient Property Credit) offers 30% of the cost of installing qualified clean energy systems in your home. This means things like solar panels and wind turbines.
Key Changes in 2025
Home energy credits have been refined under the Inflation Reduction Act (IRA) of 2022, with a few tweaks introduced. But what’s actually different?
In the past, there was a lifetime cap on how much you could claim for the Energy Efficient Home Improvement Credit. Of course, this made it challenging to make long-term plans for upgrades to your home.
But starting in 2025, this is changing to an annual credit. You’ll now be able to claim up to $3,200 a year. That includes specific allocations of up to $600 for windows and $500 for doors. This means you can claim credits every year, and therefore start longer-term phased improvements to your home.
As for the Residential Clean Energy Credit, this has been extended through 2032, so you now have more time to plan and implement renewable energy installations. It also has a slightly broader scope, as it now includes standalone battery storage systems.
Both credits also have broader categories for their covered products and improvements. Now, you can claim heat pumps and biomass stoves, giving you more flexibility in choosing upgrades to suit your needs.
Finally, these incentives now offer even more support for homeowners who aren’t high-income earners. In fact, the IRA has allocated $8.8 billion in rebates for projects in low- and middle-income households.
Eligibility Requirements for Home Energy Credits
Understanding the eligibility requirements of these incentives is the first step to maximizing these benefits.
To claim the credits, you can be a homeowner or a renter, as long as you’re located in the US. What matters is that you can prove you’re the one incurring the costs of qualifying energy-efficient improvements.
As for the type of property, it can be a primary residence, secondary home, or rental property. Just remember that the specific eligibility may vary depending on the credit, and the project. For example, the Energy Efficient Home Improvement Credit is usually available for improvements made to your principal residence. On the other hand, the Residential Clean Energy Credit can apply to both principal and secondary residences.
You’ll also need to ensure that whatever upgrades you make are eligible. Firstly, the products you use must be ENERGY STAR-certified. Basically, this indicates they meet federal energy efficiency standards. Secondly, how these products are installed must be in accordance with the manufacturer’s specifications, and comply with your local building codes.
Qualifying energy-efficient improvements include:
- Windows and skylights
- Doors
- Insulation
- Heating and cooling systems
- Water heaters
- Renewable energy systems
Once you know your products and projects qualify, you can easily make the most of the incentives on offer.
How To Maximize The Benefits
One way to ensure you’re getting the most bang for your buck is to strategically combine federal and state incentives available for energy-efficient home improvements. You see, many states offer their own incentives for energy efficiency, like rebates, credits, or low-interest loans.
To see what incentives are available in your area, check out the Database of State Incentives for Renewables & Efficiency (DSIRE).
Another option is to plan and implement improvements over multiple tax years, since the lifetime cap has now been scrapped. If you spread out larger projects over time, you can claim up to $3,200 each year, and significantly lower your bills.
It’s also essential to work with certified contractors. Both the federal and state incentives outline that home energy credits only cover installations and projects that meet specific standards, and be performed by certified professionals. Unfortunately, DIY isn’t an option when it comes to these incentives, unless you happen to be a certified contractor.
Also ensure that you research different financing options for your upgrades. There are several options available to help you reduce the upfront costs of qualifying upgrades, to make the coverage of these incentives go a little further.
Some options include energy efficient mortgages (EEMs), which allow you to finance energy-efficient upgrades as part of your mortgage. Or there are Property Assessed Clean Energy (PACE) Programs, which let you fund energy improvements through property tax assessments, and repay them over time.
Tax Filing Tips for Claiming Home Energy Credits
When claiming home energy credits, you must pay attention to documentation, and ensure you use the right tax forms and stick to any deadlines. Failure to do this means your claim might be rejected.
For example, keep all receipts and invoices from purchases for qualifying projects, as well as from the contractors who do the installations. These will help you submit the claims, and provide proof in the unfortunate event that you are audited.
Also keep all manufacturer certifications or statements that confirm that everything you use meets the required energy efficiency standards. This is crucial for verifying credit eligibility.
Next, you’ll need to ensure you use the correct tax forms.
Use IRS Form 5695 to calculate and claim both home energy credits. You must include this form with your annual tax return in whatever year the improvements were made.
If you’re in doubt about any of the tax aspects of claiming home energy credits, be sure to reach out to a professional. That way, you can get personalized help based on your circumstances. For help with home energy credits or your tax strategy, schedule a complimentary Discovery Call with our team today!
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