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Understanding the Energy Efficient Home Improvement Tax Credit

posted at 2022-11-23 00:00:00

Understanding the Energy Efficient Home Improvement Tax Credit



As 2022 draws to a close there are two reasons to think about tax credits for home efficiency work. First, it will soon be time to file your 2022 taxes, and you may have qualifying expenses. But more important, in 2023 certain tax credits will increase that can help you afford upgrades to your home. Now is the time to plan!

The 25C Non-Business Energy Property Tax Credit is for energy efficiency improvements in existing homes. This year it has a new name, the 25C Energy Efficient Home Improvement Credit. It cannot be applied to businesses, rentals, or new construction. The home must be your primary residence. It reduces the amount of tax you owe, dollar for dollar.

How to Use it This Year

For 2022 the credit can be claimed in one of the following ways:

  • 10% of the cost of qualified energy efficiency improvements, including home performance measures like energy-efficient insulation, exterior windows and doors, roofing, and similar energy-saving improvements, with a lifetime limit of $500, or
  • a specific amount for residential energy property costs, including the purchase of air source heat pumps and other efficient heating and cooling equipment. The amount for each item can be found here.

This summer the Inflation Reduction Act significantly expanded the Non-Business Energy Property Tax Credit. Beginning in 2023 the credit will equal 30% of the costs for eligible home improvements with an annual limit of $1,200, or a larger specified amount for qualified equipment. It will cover certain equipment, as well as home energy audits, which were not covered before.

How to Use it in 2023

Beginning in 2023 the credit will cover one of the following yearly:

  • 30% of the cost for weatherization installs (like air sealing and insulation) and electrical panel upgrades that allow for the use of a qualified energy-efficiency upgrade, capped at $1,200 or
  • Specific amounts up to $2,000 for qualifying electric and gas heat pumps and heat pump water heaters, biomass stoves, and boilers.

The above amounts are now annual, rather than lifetime, limits. This means you can continue to invest in your home over time and receive tax credit for your qualified improvements each year.

How to Start Planning Now

An energy audit from a BPI Certified Professional always includes a proposed scope of work ordered in the priority of your concerns. As a homeowner, you will decide how much to include in the contract. Many people prefer to do a complete home energy upgrade at once. However, the new annual limit will allow you to work within your budget over time, if desired. Many home performance businesses are booked out several months this year, so call now to reserve an appointment.

As always, choosing a highly qualified professional is important. A qualified tax preparer can help you understand the new changes and file properly. A BPI Certified Professional can help you start the process with an energy audit and a plan for improving your home.

The IRA's changes to this credit are authorized through 2032, so you can look forward to many years of tax benefits from your home performance improvements!


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