Homeowners are increasingly turning to energy-efficient upgrades to reduce utility bills and decrease their carbon footprint. In support of this green movement, the U.S. federal government has made available a range of tax credits for energy-efficient home improvements. These tax benefits not only encourage sustainable living but can also put money back in your pocket through substantial tax savings.
With recent legislation under the Inflation Reduction Act of 2022, several energy-related credits have been extended, expanded, or revived. This detailed guide breaks down which energy-efficient home tax credits you can still claim, what qualifies, and how to take advantage of them for your upcoming tax return.
Overview of Energy-Efficient Home Tax Credits
There are two primary federal tax credits for energy-efficient home upgrades that are still active and claimable through at least 2032:
- Energy Efficient Home Improvement Credit (Section 25C)
- Residential Clean Energy Credit (Section 25D)
Both credits apply to improvements on residential properties and reward homeowners who invest in approved energy-saving technologies.
1. Energy Efficient Home Improvement Credit (25C)
Previously known as the Nonbusiness Energy Property Credit, the 25C credit was revitalized and expanded under the Inflation Reduction Act and is now available through 2032. It covers a wide range of home upgrades that enhance energy efficiency.
Key Highlights:
- Credit Amount: 30% of eligible expenses, up to a maximum of $1,200 per year
- Annual Caps:
- $600 for windows/skylights
- $500 for exterior doors ($250 per door, max 2 doors)
- $600 for qualified HVAC systems, boilers, furnaces
- $150 for a professional home energy audit
- Eligible for: Improvements made to the taxpayer’s primary U.S. residence
- Effective Period: January 1, 2023 through December 31, 2032
Qualifying Improvements Include:
- ENERGY STAR® certified exterior windows and doors
- Insulation materials and systems
- Heat pumps, central air conditioners, and biomass stoves
- Natural gas, oil, or propane water heaters and furnaces
- Advanced circuit panel upgrades for energy control
Note: Labor costs may only be included for certain system installations like HVAC systems and heat pumps, not for insulation or windows.
2. Residential Clean Energy Credit (25D)
Replacing the now-expired Residential Energy Efficient Property (REEP) credit, the 25D credit promotes clean and renewable energy systems by offering a robust 30% tax credit through 2032 for qualified installations.
Key Highlights:
- Credit Amount: 30% of total costs, including labor and installation
- No Dollar Cap: There’s no maximum limit on the amount you can claim
- Credit Duration: 2022–2032 at 30%, phasing down to 26% in 2033, and 22% in 2034
- Eligible Properties: Primary and secondary residences (not rentals)
Qualifying Clean Energy Systems:
- Solar panels (photovoltaic systems)
- Solar water heaters
- Geothermal heat pumps
- Residential wind turbines
- Battery storage systems (installed after 2022)
Unlike the 25C credit, this credit allows you to roll over unused amounts to future tax years if your tax liability is less than the full credit amount.
Claiming the Credits: IRS Forms and Process
To claim either of the above credits, you’ll need to file:
- IRS Form 5695: Residential Energy Credits
- Form 1040: Personal income tax return
- Attach proof of installation, such as:
- Invoices
- Manufacturer’s certifications
- ENERGY STAR® product details
Be sure to maintain this documentation in your records even if you e-file, as the IRS may request verification.
Homeowners Energy Audit Credit
Included under the 25C category, a specific line item credit is available for professional home energy audits.
- Credit Amount: 30% of audit costs, up to $150
- Requirements: Audit must be conducted by a certified professional and include a written report detailing recommended improvements
This is a great first step for homeowners looking to strategically plan energy-saving upgrades.
Stacking Credits Over Multiple Years
One of the most significant updates under the new rules is the ability to claim energy credits over multiple years. If you plan several qualifying improvements from now through 2032, you can claim up to $1,200 per year under the 25C credit, allowing long-term tax planning and strategic home enhancements.
Do State and Utility Rebates Affect the Federal Credit?
Yes. If you received a state rebate, utility incentive, or energy savings grant, you generally must subtract that amount from your total eligible expense before calculating your federal tax credit. For example, if you paid $10,000 for a solar system but received a $2,000 rebate from your state, you can only claim the 30% credit on $8,000.
Rental Properties: Are They Eligible?
Unfortunately, these federal tax credits are limited to residential properties that you personally use. Rental-only properties do not qualify for Section 25C or 25D credits. However, landlords may explore depreciation deductions and commercial energy incentives for energy upgrades.
Important Tips for Maximizing Your Tax Benefit
- Always check ENERGY STAR® or IRS-approved equipment lists before purchasing
- Time your improvements to align with your income and tax liability
- Spread out improvements across years to maximize annual caps
- Consult a tax advisor if you plan large upgrades or multiple claims
- Check for state-level credits or rebates that may stack with federal ones
Common Mistakes to Avoid
- Claiming credits for ineligible products (e.g., non-certified windows)
- Not keeping receipts or proof of ENERGY STAR® certification
- Including non-qualifying expenses such as installation of non-energy items or unrelated home repairs
- Assuming labor costs apply to all improvements (only select categories qualify)
Conclusion: Make Your Home Greener and Reduce Your Tax Bill
The extended and expanded energy-efficient home tax credits provide a strong financial incentive to make your home more sustainable. Whether you’re planning a full solar installation, replacing old windows, or upgrading to a high-efficiency heat pump, the IRS offers generous rewards in the form of tax credits you can still claim through at least 2032.
By making strategic upgrades and understanding the IRS rules, you can cut your energy costs and reduce your tax burden at the same time. These credits not only help your wallet—they also contribute to a cleaner, greener future.
