When it comes to tax season, certain credits are designed to not only lower your tax bill but also encourage smarter, more sustainable decisions—especially when it comes to your home. If you’re thinking about making energy-efficient upgrades, you could be eligible for valuable tax incentives.
Two key federal tax credits aim to reward homeowners who invest in home energy improvements:
The Energy Efficient Home Improvement Credit
The Residential Clean Energy Property Credit
These names may sound similar, and understandably, that can cause confusion. But they cover different types of upgrades, and understanding the basics can help you take full advantage of the savings available.
This credit is intended for upgrades that improve your home’s insulation and reduce energy use. Qualifying improvements include:
Exterior doors, windows, and skylights
Insulation materials and systems
Central air conditioners
Furnaces and water heaters
Home energy audits
The amount of the credit depends on what you install. For example, some components are capped at $150, while others—like heat pumps or efficient water heaters—could allow up to $2,000 in credits. The maximum annual credit is $3,200 if you have enough eligible upgrades across different categories.
However, there are a few important notes:
Items must meet IRS-specified energy efficiency standards—make sure your contractor or supplier provides certification.
Most credits apply only to your primary residence that you own, although some items may be eligible for renters or second homes.
These credits cannot be used on new home construction.
This credit is nonrefundable—meaning it can reduce your tax bill to zero, but any unused portion doesn’t carry forward to future years.
This credit focuses on bigger investments in renewable energy systems such as:
Solar panels and solar water heaters
Geothermal heat pumps
Small wind turbines
Battery storage technology
Fuel cell systems
Rather than setting fixed dollar limits, this credit generally allows you to claim 30% of the total qualified costs.
What’s more:
The credit can be used on both primary and secondary homes, and in many cases, even if you rent.
Unlike the Energy Efficient Home Improvement Credit, this one can be used for newly constructed homes.
As with the other credit, all equipment must meet IRS efficiency standards.
Both of these tax credits not only help reduce your federal tax bill but also make your home more comfortable and energy-efficient. While the details can be complex, the potential savings are significant.
Before making upgrades, consult a tax professional to:
Confirm eligibility for specific improvements
Understand how much of a credit you can expect
Ensure you’re meeting all IRS documentation requirements
Going green isn’t just good for the planet—it’s smart for your wallet, too.
Need help navigating energy credits or planning improvements? Our team is here to guide you through every step. Contact us today to get connected with an Alloy Silverstein advisor.
Associate Partner
Julie has over 20 years of experience in public and private accounting, representing varied clientele including the medical, legal, and real estate industries and trusts.
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