Energy credits have been around for many years for homeowners and businesses but were very limited in the amount of credit that could be taken. Known as an “energy efficient home improvement credit,” for tax years starting in 2023, these residential energy credits have been expanded. Prior to 2023, residential energy credits had a lifetime limit of $500 and the credit was equal to only 10% of the amount paid or incurred by the taxpayer for certain expenditures.
There are still only certain expenditures that can be used for the energy tax credit, but the Individual Reduction Act (IRA), which changed the name of the credit to the Energy Efficient Home Improvement Credit, increased the annual limit (not lifetime) up to $3,200.
Listed below are some of the more common improvements that are eligible for the tax credit. This does not include all the credits that are available to homeowners. As always, check with your CPA regarding eligibility and remember Cyron & Company is always here to help.
Some of the Common Improvements Eligible for the Energy Efficient Home Improvement Credit Include the Following:
- A credit of up to $600 for qualified residential expenditures includes air conditioners, electric panels, natural gas, propane, or oil water heaters, oil furnaces and water boilers.
- A credit of up to $600 for windows and skylights that meet Energy Star most efficient certification requirements.
- A credit of up to $250 for exterior doors ($500 aggregate limit for all exterior doors) that meet applicable Energy Star requirements.
- A credit of up to $150 for amounts spent for a home energy audit defined as an inspection and written report with respect to a dwelling unit located in the United States and owned by the taxpayer.
With the expansion of energy credits, there is an opportunity for tax planning for the current year and many years into the future. As the law stands now, the credits are eligible for the years 2023 – 2033. It is important, as mentioned, to talk with your tax advisor to check eligibility as well as maximum credits.
It’s important to note that if you use a property solely for business purposes, you cannot claim the credit. According to The IRS website: If you use your home partly for business, the credit for eligible clean energy expenses is as follows:
- Business use up to 20%: full credit
- Business use more than 20%: credit based on share of expenses allocable to nonbusiness use
How to claim the Energy Efficient Home Improvement Credit
In order to claim the energy efficient home improvement credit, you must file Form 5695, Residential Energy Credits Part II, with your tax return, according to The IRS. The IRS says this on their website: “You must claim the credit for the tax year when the property is installed, not merely purchased.”
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