WASHINGTON – Torkelsons & Associates wants to inform our valued clients that the Internal Revenue Service (IRS) has announced that making certain energy-efficient updates to your homes could qualify you for home energy credits. These credit amounts and types of qualifying expenses were expanded by the Inflation Reduction Act of 2022, offering significant benefits to homeowners who make energy improvements to their residences.
What Our Clients Need to Know
Our clients can claim the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit for the year in which the qualifying expenditures are made. Homeowners improving their primary residence will find the most opportunities to claim these home energy credits. Renters and owners of second homes used as residences may also be eligible, though landlords are excluded from claiming these credits.
We encourage our clients to review all requirements and qualifications for energy-efficient equipment on IRS.gov/HomeEnergy before making any purchases. Additional information is available on energy.gov, which compares credit amounts for tax year 2022 and tax years 2023-2032.
Energy Efficient Home Improvement Credit
Clients who make qualified energy-efficient improvements to their homes after January 1, 2023, may qualify for a tax credit of up to $3,200. The Inflation Reduction Act specifies that beginning January 1, 2023, the credit equals 30% of certain qualified expenses, including:
- Qualified energy efficiency improvements installed during the year, such as:
- Exterior doors, windows, and skylights.
- Insulation and air sealing materials or systems.
- Residential energy property expenses such as:
- Natural gas, propane, or oil water heaters.
- Natural gas, propane, or oil furnaces and hot water boilers.
- Heat pumps, water heaters, biomass stoves, and boilers.
- Home energy audits of a main home.
The maximum credit that can be claimed each year includes:
- $1,200 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).
- $2,000 per year for qualified heat pumps, biomass stoves, or biomass boilers.
This credit is nonrefundable, meaning clients cannot receive more from the credit than what is owed in taxes, and any excess credit cannot be carried over to future tax years.
Residential Clean Energy Credit
Clients who invest in energy improvements for their main home, including solar, wind, geothermal, fuel cells, or battery storage, may qualify for an annual residential clean energy tax credit. This credit equals 30% of the costs of new, qualified clean energy property for a home in the United States installed anytime from 2022 through 2032. Qualified expenses include:
- Solar electric panels.
- Solar water heaters.
- Wind turbines.
- Geothermal heat pumps.
- Fuel cells.
- Battery storage technology (beginning in 2023).
To qualify for the Residential Clean Energy Credit, clean energy equipment must meet the following standards:
- Solar water heaters must be certified by the Solar Rating Certification Corporation or a comparable entity endorsed by the applicable state.
- Geothermal heat pumps must meet Energy Star requirements in effect at the time of purchase.
- Battery storage technology must have a capacity of at least 3 kilowatt hours.
This credit has no annual or lifetime dollar limit except for fuel cell property. Clients can claim this credit every year they install eligible property on or after January 1, 2023, and before January 1, 2033. This is also a nonrefundable credit, but clients can carry forward any unused credit and apply it to tax owed in future years.
Additional Information
For more details, our clients should visit IRS.gov for information on qualifying residences and guidelines for those who also use their homes for business purposes. When filing a tax return, use Form 5695, Residential Energy Credits, to claim the credit. It is important to note that the credit must be claimed for the tax year when the property is installed, not just purchased.
Good Recordkeeping
We advise our clients to keep good records of purchases and expenses, which will assist in claiming the applicable credit during tax filing season.