What is the Energy Efficient Home Improvement Credit?
The Energy Efficient Home Improvement Credit is a tax incentive for homeowners who make qualified energy-efficient improvements to their homes. This credit allows taxpayers to claim up to 30% of certain qualified expenses, including energy efficiency improvements, residential clean energy property, and home energy audits. The maximum credit one can claim in this tax season 2025 is $3,200 if taxpayers make qualified energy-efficient improvements to your home after Jan. 1, 2023.
What is the Residential Clean Energy Property Credit?
The Residential Clean Energy Property Credit is a tax credit for homeowners investing in renewable energy systems like solar, wind, geothermal, fuel cells, or battery storage technology.
Who is Eligible?
To qualify for the Energy Efficient Home Improvement Credit, the home must be your primary residence, located in the United States, and an existing home that you improve or add onto. For the Residential Clean Energy Property Credit, you may claim the credit for improvements to your main home, whether you own or rent it. The credit applies to new or existing homes located in the United States.
How to Apply?
To apply for these credits, taxpayers need to file IRS Form 5695 with their tax return. Make sure to keep records of your qualified expenses, including receipts and manufacturer certifications, to support your claim.
What are the New Changes for the Tax Year 2024-2025?
For the Energy Efficient Home Improvement Credit, starting from tax season 2025.
- Qualified Manufacturer Requirement: No credit will be allowed for an item unless it is produced by a qualified manufacturer recognized by the IRS.
- PIN Reporting: Taxpayers must report the Product Identification Number (PIN) for each qualifying item on their tax return to claim the credit.
For the Residential Clean Energy Property Credit, the credit percentage rate remains at 30% for property installed through 2032, but it will phase down to 26% for property placed in service in 2033 and 22% for property placed in service in 2034.
These credits provide a significant opportunity for homeowners to invest in energy-efficient and renewable energy improvements, reducing their tax burden while contributing to a more sustainable future.
Eligibility Requirements for Energy Efficient Home Improvement Credit
- Primary Residence: The home must be your primary residence and located in the United States.
- Existing Home: The credit applies to improvements made to an existing home, not a new home.
- Qualified Improvements: The improvements must meet specific energy efficiency standards, such as:
- Exterior windows and skylights must meet Energy Star’s most efficient certification requirements.
- Exterior doors must meet applicable Energy Star requirements
- Insulation materials or systems must meet the prescriptive criteria established by the International Energy Conservation Code (IECC) standard.
- Business Use: If you use your home partly for business, the credit is based on the share of expenses allocable to non-business use.
Eligibility Requirements for Residential Clean Energy Property Credit
- Main Home: The credit applies to improvements made to your main home, whether you own or rent it. The home must be located in the United States.
- Qualified Clean Energy Property: The property must be new and meet specific requirements, such as:
- Solar electric panels and solar water heaters must be certified for performance by the Solar Rating & Certification Corporation or a comparable entity. To get certified by the Solar Rating & Certification Corporation (SRCC), manufacturers must apply for OG-100 (solar collectors) or OG-300 (solar water heating systems) certification. They need to submit an application with product specifications, undergo testing at an SRCC-recognized lab, and pass a performance review. Upon approval, SRCC issues certification, which may require periodic renewal. For details, visit the SRCC Application Resources.
- Wind turbines, geothermal heat pumps, and fuel cells must meet the highest efficiency tier established by the Consortium for Energy Efficiency (CEE). To qualify for the Energy Efficient Home Improvement Credit, wind turbines, geothermal heat pumps, and fuel cells must meet the highest efficiency tier established by the Consortium for Energy Efficiency (CEE). For detailed information on these efficiency tiers, please refer to the CEE Tiers and ENERGY STAR page.
- Battery storage technology must have a capacity of 3 kilowatt-hours or greater.
- Business Use: If you use your home partly for business, the credit is based on the share of expenses allocable to non-business use.
The Energy Efficient Home Improvement Credit and the Residential Clean Energy Property Credit provide valuable incentives for homeowners to invest in energy-efficient and renewable energy improvements. These credits not only reduce your tax burden but also contribute to a more sustainable and eco-friendly future. By understanding the eligibility requirements, maintaining proper documentation, and staying informed about the latest changes, taxpayers can take full advantage of these credits and make impactful improvements to their homes. Keep in mind the importance of keeping accurate records and verifying that the products you install meet the required standards to ensure a smooth application process.
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