The federal government — and many state governments — can help you cover the cost of making energy efficient home improvements. You can get tax breaks for installing energy efficient windows, doors, and cooling and heating systems, and even bigger breaks for installing solar panels and water heaters — and making other major changes.
The Inflation Reduction Act of 2022 significantly increased the benefits for energy efficient home improvements starting in 2023 and going through 2032. Here’s what you need to know about taking advantage of those benefits at tax time.
[Read: 10 Tax Credits You May Qualify for This Year]
Some Energy Efficient Tax Beaks Extended for 2022
The energy efficient home improvement credit was scheduled to expire on Dec. 31, 2021, but the Inflation Reduction Act extended it for 2022. The credit is worth 10% of the cost of certain energy-efficient windows, doors and skylights, and 100% of the cost of certain air conditioning and water heater systems.
According to the IRS website, “Through Dec. 31, 2022, the energy efficient home improvement credit is a $500 lifetime credit.” That means that any amounts you’ve received in past years reduce the amount available for the current credit.
“If you had already used up your lifetime credit before 2022, the credit would not be available for 2022,” Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting, says. There are also lower limits for certain items, such as $200 for windows.
If you made eligible home improvements in the past and didn’t take the break at the time, you may be able to file an amended return (Form 1040-X) and get a refund, according to Barbara Weltman, author of “J.K. Lasser’s 1001 Deductions and Tax Breaks 2023.” You generally have up to three years after the filing deadline to file an amended return.
New and Expanded Energy Efficiency Breaks for 2023
The Inflation Reduction Act also expanded these credits starting in 2023. They now cover additional expenses and are worth up to $1,200 each year from 2023 to 2032, Luscombe says. Keep in mind that a tax credit reduces your tax liability dollar for dollar.
[Read: 10 Tax Credits You May Qualify for This Year]
There are limits for each kind of improvement within the $1,200 annual maximum. For example, the credit for eligible exterior doors is limited to 30% of costs up to $250 per door, with a total allowance of $500. Exterior windows and skylights are limited to 30% of costs for a total allowance of $600. Insulation materials or systems — and air sealing materials or systems — are limited to 30% of costs.
Qualifying residential energy property is limited to 30% of costs, including labor, with a maximum of $600 for each item, including eligible central air conditioners; natural gas, propane and oil water heaters; natural gas, propane and oil furnaces; and hot water boilers.
Eligible heat pumps and biomass stoves and boilers are limited to 30% of costs, including labor, for a maximum yearly credit of $2,000 (this is separate from the $1,200 limit). The energy efficient home improvement credit no longer has a $500 lifetime limit.
Items Must Meet Certain Standards to Qualify
Each of these items must meet certain energy efficiency standards to qualify for the credit. For example, windows and skylights must have earned the Energy Star “Most Efficient” designations.
For more information about the credits and requirements for each type of item, see the IRS energy efficient home improvements factsheet. Also, see EnergyStar’s Tax Credits for Homeowners resource page for requirement details.
You may also get help finding eligible items through home improvement stores.
“The Inflation Reduction Act offers expanded tax credits and rebates for many products that will help make our customers’ homes more energy efficient, and we have a number of resources available to help Lowe’s customers make the most of this opportunity,” Kara Hauck, spokesperson for Lowe’s, says.
For example, you can visit the Lowe’s rebate center, click on “current rebate offers,” then filter the offers for “tax credits” to find items that are eligible for the credit, plus you can view rebates from local energy companies and other breaks.
Another new break can help you plan your home improvements.
“Starting in 2023, the cost of home energy audits can qualify for the credit and may help homeowners know which improvements to make,” Weltman says. The home energy audit credit is limited to 30% of the cost with a maximum allowance of $150.
[READ: California Leads on Energy Efficiency]
Larger Credits for Clean Energy
The residential clean energy property credit is worth up to 30% of the cost of some major clean energy systems installed from 2022 through 2032, such as solar panels, solar water heaters (used for other purposes than heating swimming pools or hot tubs), small wind turbines and geothermal heat pumps. The credit is scheduled to fall to 26% of the costs in 2033 and 22% in 2034 — and it expires in 2035.
These items are generally not subject to an overall dollar limit, and the cost of installation often counts toward the credit.
You can find details about requirements for each item at EnergyStar. For example, a solar heating property must be certified for performance by the nonprofit Solar Rating Certification Corporation or a comparable entity endorsed by the federal or state government. And geothermal heat pumps must meet the Energy Star program requirements.
Other Ways to Get Breaks for Energy Efficiency
You may be eligible for a variety of other breaks for energy efficient home improvements and appliances.
“Also, check out tax breaks at the state and local levels,” Weltman says.
“There may be tax credits, rebates or other incentives to help improve your home and save energy. Find tax breaks at DSIRE.” Just type your ZIP code into the Database of State incentives for Renewables & Efficiency to find breaks available in your area.
In addition, your local energy company may offer programs that could help you save money on energy efficient improvements, appliances and other products.
For example, Virginia’s Dominion Energy offers residential customers rebates for purchasing certain Energy Star-certified appliances, like up to $50 for an eligible refrigerator or washing machine, $100 for a dryer and $50 for a dishwasher. Check your energy company’s website for details. You can also look up rebate programs for your ZIP code by using the Energy Star rebate finder.
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How to Get Valuable Home Energy Tax Credits originally appeared on usnews.com
Update 03/31/23: This story was published at an earlier date and has been updated with new information.
