The Internal Revenue Service (IRS) said on Thursday that taxpayers may qualify for home energy credits if they make certain energy-efficient improvements to their homes.
The Inflation Reduction Act expanded the credit amounts and types of qualifying expenses introduced in 2022, the agency said in a statement on May 9.
Taxpayers can claim two types of tax credits: the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit. These credits can be claimed for the year in which the qualifying changes were made.
The IRS stated that homeowners who improve their primary residence will be eligible to claim a credit for qualifying expenses. Renters and owners of second homes used as residences may also be eligible for credits, but landlords cannot.
According to the agency, taxpayers who have made qualified energy-efficient improvements to their homes after Jan. 1, 2023, may be eligible for a tax credit of up to $3,200.
The Energy Efficient Home Improvement Credit equals 30 percent of qualified expenses. These improvements include the installation of exterior doors, windows, skylights, insulation, and air-sealing materials.
Residential energy property expenses also qualify for this tax credit, including the installation of natural gas, propane or oil water heaters, furnaces, hot water boilers, heat pumps, water heaters, biomass stoves, boilers, and home energy audits of a primary home.
Eligible taxpayers can claim up to $1,200 per year for energy property costs and certain energy-efficient home improvements, with limits on doors ($250 per door and $500 total), windows ($600), and home energy audits ($150). Additionally, they can receive $2,000 per year for qualified heat pumps, biomass stoves, or biomass boilers.
“The credit is nonrefundable, which means taxpayers cannot get back more from the credit than what is owed in taxes, and any excess credit cannot be carried [over] to future tax years,” it stated.
Meanwhile, the Residential Clean Energy Credit is available to taxpayers who invest in energy updates for their primary home, such as solar, wind, geothermal, fuel cells, or battery storage.
This credit equals 30 percent of the costs of qualified clean energy property for a home in the United States installed anytime from 2022 through 2032.
Expenses that qualify for this tax credit include the installation of solar electric panels, solar water heaters, wind turbines, geothermal heat pumps, fuel cells, and battery storage technology (beginning in 2023).
However, these pieces of equipment must meet certain standards to qualify for the credit. For instance, claimants must ensure that their solar water heaters are certified by the Solar Rating Certification Corporation or another approved certification body.
In addition, this tax credit will only qualify for geothermal heat pumps that meet the Energy Star standards and battery storage technology with a capacity of 3-kilowatt hours.
The IRS said that there is no annual or lifetime dollar limit for this credit except for fuel cell property. Taxpayers have until Jan. 1, 2033, to claim this credit, it stated.
“This is a nonrefundable credit, which means the credit amount received cannot exceed the amount owed in tax. Taxpayers can carry forward excess unused credit and apply it to any tax owed in future years,” it said.
