With winter almost here, homeowners can take advantage of a federal tax credit to keep their homes warm. Homeowners can claim the Energy Efficient Home Improvement tax credit of up to $3,200 per year for qualified energy-efficient improvements made to their homes after Jan. 1, 2023. Eligible homeowners can claim the credit for qualified improvements made through 2032.
Energy Efficient Home Improvement tax credit: what is it?
President Joe Biden’s Inflation Reduction Act, signed into law in August 2022, created the Energy Efficient Home Improvement tax credit. The credit allows homeowners to boost their home’s efficiency by spending on energy-efficient improvements. Projects, including installing energy-efficient insulation, windows, doors, electric heat pumps and more, qualify for the credit.
According to the U.S. Department of Energy, an average American spends about $2,000 on energy bills annually. Further, the department says that home heating represents 45% of the average American’s energy use, while water heating represents about 18%.
Thus, it is important for people to minimize the heat loss to the outside through walls and windows, and generate heat as efficiently as possible. This is where the Energy Efficient Home Improvement tax credit can help.
It is designed to encourage people to install energy-efficient improvements and use the credit to minimize their costs. Along with helping people, installing energy-efficient improvements is good for the environment as well.
How much credit can you get?
The credit amount is limited to 30% of the cost of qualifying projects. In aggregate, however, a person may qualify for up to $3,200 a year, depending on the number and nature of the projects.
For instance, a credit of up to $500 per year is allowed for installing efficient exterior doors; for exterior windows and skylights, the maximum credit is up to $600, while up to $150 is allowed for a home energy audit.
The combined tax credit for all these projects is up to $1,200 annually, while up to $2,000 per year is allowed for qualified heat pumps, biomass stoves or biomass boilers. So, the maximum Energy Efficient Home Improvement tax credit that taxpayers can get is up to $3,200, provided they use the full $1,200 and $2,000 credit.
To qualify for the credit, the installations must meet efficiency standards outlined by the IRS. Also, labor costs may not qualify for credit in some cases. A taxpayer can only benefit from the credit if they file an annual tax return.
The Energy Efficient Home Improvement tax credit is nonrefundable, meaning taxpayers must have a tax liability to benefit from the credit. So, a taxpayer won’t get a refund if the credit exceeds the tax liability, nor will the excess credit be allowed to be carried forward for future tax years.
Visit the IRS website to get more information on the Energy Efficient Home Improvement Credit.
