In addition to energy savings and lowered energy costs, there are other benefits to making efficiency improvements to your home. The federal government offers several energy tax credits to encourage homeowners to make their houses a little greener.
How do you know if you qualify for a federal energy tax credit? And how much of a tax break can you get on your environmentally friendly home upgrades?
Gexa’s guide to renewable energy tax credits is designed to help you understand if your home improvements qualify, how the tax credits work, and how to claim these credits on your annual tax return.
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What Home Upgrades Qualify for a Tax Credit?
While energy-efficient tax credits have been available for several years, many of them were set to expire soon. Thanks to the Inflation Reduction Act, the Residential Energy Efficient Property Credit has been extended through the year 2034.
Now known as the Residential Clean Energy Credit, this energy tax credit is available for the costs of renewable electricity home upgrades, including:
- Solar panels and solar system equipment that generates electricity used in the home
- Solar-powered water heaters that heat water used inside the home
- Geothermal heat pumps that adhere to ENERGY STAR® guidelines
- Wind turbines that generate up to 100 kilowatts (kW) of electricity for residential use
- Fuel cells (usually hydrogen) used to generate power for a home
Equipment in both a primary residence and secondary home qualifies for the Residential Clean Energy Tax Credit, as long as the property is located in the U.S. This tax credit is equal to 30% of the total cost of the home improvements, including installation costs, through 2032. That amount decreases to 26% for 2033 and 22% for 2034, after which the credit is scheduled to expire unless renewed.
An expired tax credit, the Energy Efficient Home Improvement Credit (formerly the Nonbusiness Energy Property Credit) was also revived by the Inflation Reduction Act and extended to 2032. This credit is equal to 30% of the costs of all eligible home improvements made during the taxable year up to a $1,200 annual limit.
Some ENERGY STAR®-certified products are also eligible for the ENERGY STAR® tax credit, including central air conditioning units, air-source heat pumps, and non-solar water heaters.
Are There Limits to the Energy Tax Credits?
While these credits offer savings for homeowners, there are specific limits. Some items may need to meet additional requirements, such as ENERGY STAR® certification or thermal efficiency ratings, to qualify for the credit. Additionally, credits that provide for a percentage of the cost of the project may have a cap on these amounts or exclude certain expenses, such as labor.
Beginning in 2023, the limits on the Energy Efficient Home Improvement Credit have been adjusted to:
- $150 for home energy audits
- $250 for a single exterior door, $500 total for all exterior doors
- $600 for exterior windows and skylights; central air conditioning units; electric panels; and natural gas, propane, or oil water heaters, furnaces, or hot water boilers
- $2,000 for electric or natural gas heat pump water heaters, heat pumps, and biomass stoves and boilers (for this category only, the $1,200 annual limit is raised to $2,000)
What About Solar Energy Tax Credits?
The federal solar tax credits also benefited from the passage of the Inflation Reduction Act, expanding the credit to 30% of the costs of installing a residential solar power system and extending the credit’s availability to 2032. As of 2033, the amount will be 26% for systems installed; by 2034, it will be 22% for systems installed.
The federal solar energy tax credit does not have a maximum amount. Homeowners are eligible to claim this credit if:
- Your solar panels were installed between January 1, 2017, and December 31, 2034.
- You own a U.S. residence that is equipped with a solar system.
- Your solar system is either purchased with cash, financed, or you purchased an interest in an off-site community solar project.
- The solar system is new or being used for the first time.
Check with your local retail electricity provider for other solar incentives available in your area.
How Do You Claim an Energy Efficiency Tax Credit?
To file for one of these renewable energy tax credits, consult a tax professional about your eligibility and complete Form 5695, Residential Energy Credits. Before you prepare your form, gather your receipts and manufacturer’s certification statement, as you may need these for reference. Submit Form 5695 with your annual tax return.
Take full advantage of your potential renewable energy tax credits with Gexa. Gexa Energy offers 100% green residential electricity plans, specialty solar electricity plans for homeowners with new solar systems. Join us in building a cleaner planet with renewable energy benefits.
