According to the IRS. "Through December 31, 2022, the energy efficient home improvement credit is a $500 lifetime credit. As amended by the IRA, the energy efficient home improvement credit is increased for years after 2022, with an annual credit of generally up to $1,200. Beginning January 1, 2023, the amount of the credit is equal to 30% of the sum of amounts paid by the taxpayer for certain qualified expenditures, including (1) qualified energy efficiency improvements installed during the year, (2) residential energy property expenditures during the year, and (3) home energy audits during the year. There are limits on the allowable annual credit and on the amount of credit for certain types of qualified expenditures (see Q -1 and 2 below). The credit is allowed for qualifying property placed in service on or after January 1, 2023, and before January 1, 2033."
What homes qualify for the credit?
- The credit is available for certain improvements made to the primary and second homes. The credit is not available for improvements made to homes not used as a residence by the taxpayer.
- The credit is only for qualifying expenses incurred for an existing home or for an addition to or renovation of an existing home, and not for a newly constructed home.
- If a taxpayer uses the property solely for business purposes, the property will not qualify for the credit. Business use less than 20% will qualify for the full credit. Business use more than 20% must calculate the credit by allocating the expenses for nonbusiness purposes.
What home improvements are eligible for the credit?
- The following building components that satisfy the Energy Efficient Requirements
- Exterior doors (30% of costs up to $250 per door, up to a total of $500);
- Exterior windows and skylights (30% of costs up to $600); and
- Insulation materials or systems and air sealing materials or systems (30% of costs)
- Home must be located in the United States and must be owned and used by the taxpayer
as the taxpayer's principal residence
- Home energy audits (30% of costs up to $150)
- the home must be located in the United States and owned or used by the taxpayer as the taxpayer’s principal residence
- The following residential energy property (30% of costs, including labor, up to $600 for each item) that satisfies the energy efficiency requirements:
- central air conditioners;
- natural gas, propane, or oil water heaters;
- natural gas, propane, or oil furnaces and hot water boilers; and
- improvements to or replacements of panelboards, sub-panelboards, branch circuits, or feeders that are installed along with building envelope components or other energy property listed in these FAQs and enable its installation and use
- the home must be located in the United States and used as a residence by the taxpayer
- Heat pumps and biomass stoves and biomass boilers (30% of costs, including labor) that satisfy the energy efficiency requirements:
- electric or natural gas heat pump water heaters;
- electric or natural gas heat pumps; and
- biomass stoves and biomass boilers
What are the energy efficiency requirements?
- Exterior doors, windows, and skylights must meet applicable Energy Star requirements
- Insulation materials or systems and air sealing materials or systems must meet the criteria established by the International Energy Conservation Code (IECC) standard in effect at the start of the year that is two years prior to the year the materials or systems are placed in service (2022 materials must meet criteria established in 2020)
- Electric or natural gas heat pumps, electric or natural gas heat pump water heaters, central air conditioners, natural gas or propane or oil water heaters, natural gas or propane or oil furnaces or hot water boilers: must meet or exceed the highest efficiency tier established by the Consortium for Energy Efficiency (CEE) that is in effect as of the beginning of the year in which the property is placed in service.
- Oil furnaces or hot water boilers can alternately qualify if they
- meet or exceed 2021 Energy Star efficiency criteria and are rated by the manufacturer for use with fuel blends at least 20 percent of the volume of which consists of an eligible fuel; OR
- if placed in service after December 31, 2026, achieves an annual fuel efficiency rate of not less than 90 and is rated by the manufacturer for use with fuel blends at least 50 percent of which consists of an eligible fuel.
- Biomass stove or biomass boilers must have a thermal efficiency rating of at least 75%
- Panelboards, sub-panelboards, branch circuits, or feeders must be installed according to the National Electric Code and have a load capacity of 200 amps or greater
- Used property is not eligible for the credit
Can I include labor costs?
You may include the labor costs for onsite preparation, assembly, or original installation of residential energy property such as:
- central air conditioners
- natural gas, propane, or oil water heaters
- natural gas, propane, or oil furnaces or hot water boilers
- electric or natural gas heat pumps
- electric or natural gas heat pump water heaters
- biomass stoves or biomass boilers; or
- improvements to panelboards, sub-panelboards, branch circuits, or feeders.
You may not include the labor costs for:
- building envelope components including a qualifying insulation material or system, exterior window, skylight, or exterior door. If the taxpayer pays a fixed price for the improvement, they must make a reasonable allocation between the qualifying cost of the property and the nonqualifying labor cost of the installation.
What it the limit of the credit I can claim?
- The total yearly tax credit limit for building components, home energy audits, and energy property (1-3 above) is $1,200.
- The total yearly tax credit for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and biomass boilers (number 4 above) is a separate yearly limit of $2,000. The maximum total yearly energy efficient home improvement credit amount may be up to $3,200. See the IRS FAQ form for examples.
- The limit is determined on a yearly basis
- Cannot be carried forward
- Nonrefundable credit- can only be used to reduce tax liability- not generate a refund.
The credit is claimed in the year the property is installed.