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January 17, 2024
It’s 2024 already! If you expect to have an income tax burden for the 2023 tax year, you may be thinking of ways to reduce the tax you owe. If you made efficiency improvements to your home in 2023 the 25C tax credit may be just the help you’re looking for. For qualified filers, it can reduce the amount of tax owed by up to $3,200.
What Properties Qualify for the 25C?
The IRS placed guidelines on how the tax credit may be used. The home must be:
- Located in the United States
- An existing home that you improved or added onto, not a new home.
In most cases, the home must be your primary residence (where you live the majority of the year). You can't claim the credit if you're a property owner who doesn't live in the home, and the 25C cannot be used for business properties.
What Expenses Can Be Claimed?
When filing taxes for 2023, the 25C credit may be claimed for qualifying work performed between January 1, 2023, and December 31, 2023. The maximum credit you can claim is:
- $1,200 for energy property costs and certain energy-efficient home improvements, with limits on doors ($250 per door and $500 total), windows ($600 total), qualifying home energy audits ($150, and insulation and air sealing materials or systems that meet the specified code standards. Labor costs for installing building envelope components do not qualify for the credit.
- $2,000 per year for qualified heat pumps, biomass stoves or biomass boilers. These must have a thermal efficiency rating of at least 75% to qualify. Costs can include labor for the installation for these measures.
- $600 per item for residential energy property that meets the Consortium for Energy Efficiency’s highest efficiency tier, such as central air conditioners, natural gas, propane, or oil water heaters, natural gas, propane, or oil furnaces and hot water boilers. Electrical components like panelboards, sub-panelboards, branch circuits, and feeders, are included if they meet the National Electric Code and have a capacity of 200 amps or more. Costs may include labor for installation.
What are the Limitations of the 25C Credit?
The credit is nonrefundable, so you can't get back more on the credit than you owe in taxes, and you can't apply any excess credit to future tax years. But the good news is that the credit is annual and has no lifetime dollar limit. You can claim the maximum annual credit every year you make eligible improvements. The 25C tax credits are compatible with other upgrade measures covered under the Inflation Reduction Act rebates, but not for the same measures.
The 25C Tax Credit is currently authorized for improvements made through 2032. This means you may continue using it to improve your home for many years before the credit is renewed or expired.
Keep in mind that the 25C credit can be claimed for equipment and material only for the tax year it is installed, not merely purchased. If you purchased doors, windows, or other properties in 2023 but haven’t installed them yet, they will not be in your 2023 return.
When calculating your credit, you may need to subtract subsidies, rebates, or other financial incentives from your qualified property expenses. The costs that may be claimed vary depending on the item, so read the IRS guidance to be sure you file correctly, using Form 5695 to claim the credit.
Consult Your Professional Team on Tax Matters
The BPI Certified Professional who did your energy audit and installed equipment in your home can help you understand if your expenditures qualify for the 25C. A qualified tax preparer can help you understand the credit and file correctly.
By working carefully with your team, you should be able to claim all qualifying expenses and reduce your 2023 tax burden while enjoying a more safe, healthy, comfortable, and durable home!