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 for qualifying expenses incurred for either an existing home or 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 home must be located in the United States and used as a residence by the taxpayer. For fuel cell property expenditures, the home must be located in the United States and used as a principal residence by the taxpayer
- solar electric property expenditures (solar panels)
- solar water heating property expenditures (solar water heaters)
- fuel cell property expenditures
- small wind energy property expenditures (wind turbines)
- geothermal heat pump property expenditures
- battery storage technology expenditures
What are the energy efficiency requirements?
- Solar water heating property must be certified for performance by the non-profit Solar Rating Certification Corporation or a comparable entity endorsed by the government of the State in which such property is installed.
- Geothermal heat pump property must meet the requirements of the Energy Star program which are in effect at the time that the expense is made.
- Battery storage technology property must have a capacity of 3 kilowatt-hours 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 the qualifying property. You may also include piping or wiring to interconnect the property to the home.
What is the limit of the credit I can claim?
- There is no overall dollar limit on the credit. Instead, the credit is limited to 30% of qualified expenses made for property placed in service beginning in 2022.
- The credit is claimed in the year the property is installed.
- The limit is determined on a yearly basis
- You may carry forward the unused amount of the credit
- Nonrefundable credit- can only be used to reduce tax liability- not generate a refund.
The credit allowed for fuel cell property expenditures is 30% of the expenditures up to a maximum credit of $500 for each half kilowatt of capacity of the qualified fuel cell property.