What Qualifies for an Energy Efficient Home Improvement Credit?

Q: What is the energy efficient home credit?

The Energy Efficient Home Improvement Credit provides a tax credit for the purchase of qualifying equipment, home improvements, and energy audits to make a home more energy efficient. The tax credit is the lesser of 30% of the total amount for qualifying home improvements or $1,200 a year.

Q: What qualifies for energy tax credit in 2023?

Certain home improvements and equipment items qualify for the Energy Efficient Home Improvement Credit in 2023. These include home energy audits; exterior doors, windows and skylights; central A/C units; electric panels and related equipment; natural gas, propane and oil water heaters, furnaces, and hot water boilers.

Q: Is there a tax credit for replacing windows?

If you replace your windows with energy-saving windows, they may qualify for energy tax credits. There is a specific credit limit for exterior windows of $600.

Q: Does a new HVAC system qualify for a tax credit?

A new HVAC system may qualify for the Energy Efficient Home Improvement Tax Credit. To be eligible, it must meet or exceed the highest efficiency tier established by the Consortium for Energy Efficiency that’s in effect at the beginning of the year in which the system is installed.

Energy Efficient Home Improvement Credit Guide

Jason SteeleUpdated May 5, 2023

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To encourage people to buy energy-efficient products and services, the government offers home energy tax credits. That means you could potentially save on your energy bills and taxes, while reducing your energy consumption.For example, the Energy Efficient Home Improvement Credit provides tax credits for the purchase of qualifying equipment (like exterior doors and windows, central A/C units, and natural gas, propane and oil water heaters, furnaces, and hot water boilers), home improvements, and energy audits. The Residential Clean Energy Credit provides tax credits for the purchase of qualifying equipment including solar, wind, geothermal, and fuel-cell technology. Read on to learn more about clean energy tax credits and how residential energy credit works.

Deadlines for Clean Energy Credits

The Residential Clean Energy Credit is a credit for 30% of the total amount of adding qualifying equipment for energy efficiency to your home. The residential energy credit applies for equipment installed after December 31, 2021, and before January 1, 2033. In 2033, the amount of this home energy tax credit starts to decrease. It’s 26% for 2033, and 22% for 2034. The credit will no longer be given after December 31, 2034.The Energy Efficient Home Improvement Credit is a credit consisting of the lesser of 30% of the total amount for qualifying home improvements or $1,200 a year. The improvements need to be made by January 1, 2023, and before January 1, 2033 in order to be eligible for the credit.

What Qualifies as a Residential Clean Energy Credit?

The Residential Clean Energy Credit is for purchases that make a home more energy efficient. Examples of eligible equipment include:

Solar panels for electricity
Solar-powered water heaters for water used inside the home (at least half of the home’s water-heating capacity needs to be solar, not including water for swimming pools and hot tubs)
Wind turbines for home use that generate up to 100 kilowatts of electricity
Geothermal heat pumps that meet Energy Star guidelines
Fuel cells using a renewable resource to generate power for a home
Battery storage technologies.

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Tax Deduction Limits for Energy Efficient Home Improvement Credits

As a result of the Inflation Reduction Act in 2022, the Energy Efficient Home Improvement Credit went from a lifetime credit of $500, to a $1,200 annual credit for 10 years. The credit applies to qualifying equipment and improvements made on or after January 1, 2023, and before January 1, 2033. As mentioned above, the credit is equal to the lesser of 30% of the sum of the amounts paid for qualifying home improvements, or the annual $1,200 credit limit. Some items have specific dollar credit limits, including:

Home energy audits: $150
Exterior doors: $250 per door, up to $500 per year
Exterior windows and skylights; central A/C units; electric panels and related equipment; natural gas; propane and oil water heaters, furnaces and hot water boilers: $600

If you decide to spread out your qualifying home improvements over the 10 years the credit is good for, you could potentially receive up to $12,000 back on your taxes. In addition to the $1,200 yearly credit limit, you can also receive up to an additional $2,000 per year for making qualified investments in heat pumps and biomass stoves and boilers. All together, you could claim a maximum total yearly Energy Efficient Home Improvement Credit of up to $3,200.

Are Roofing Costs Covered?

Some roofing costs are covered under the Residential Clean Energy Credit. For instance, if you buy certain types of solar roofing equipment, such as solar roofing tiles and shingles, these expenses can be eligible for credit because they’re a form of solar electric power generation as well as traditional roofing. However, if you upgrade or replace a roof in preparation for installing solar panels, these improvements generally don’t qualify for the home energy credit because they’re done mainly for roofing and structural reasons.

Who Is Eligible for Residential Energy Credits?

You may qualify for these clean energy tax credits if you spend money on renewable energy for your main residence in the U.S., whether you own it or rent it. If you own the property, but don’t live there most of the time, you generally can’t claim the credit.The renewable energy you install in your home must be solar panels or water heaters, geothermal heat pumps, wind turbines, fuel cells, or battery storage technology. All the items are required to be new (no used equipment), and they need to meet certain standards or ratings. You can find out more about the specific home energy credit requirements at irs.gov.

Alternative Funding for Home Improvement Projects

If you are looking to fund a green home improvement project, you have a few options.Grants: There are grants available for adding clean energy sources to your home and making it more energy efficient. Many states offer these grants, so visit your state government website. You can also check online with your state’s office of the U.S. Department of Housing and Urban Development. In addition, there are government programs, like the Residential Property Assessed Clean Energy program, as well as state and local programs, that may be able to provide financing for your project. Personal loans: Another option is to take out a small personal loan to cover the cost of green home projects. Personal loans can be used for a variety of purposes, and personal loans for home improvement are a common use. With a personal loan, a bank, online lender, or credit union lends you a lump sum that you repay with interest in installments over time. Interest rates and terms for personal loans vary depending on factors like your income, your credit score and the size of the loan. Once you’re approved for a personal loan, you may expect to receive funds quickly, typically within one to five days. If you’re interested in a personal loan to finance your energy efficient home improvement project, you can explore the top personal loans to find one that works for you.Financing: You may be able to fund energy efficient equipment through various financing methods. For instance, If you need funds to cover the cost of replacing an A/C, there are AC unit financing options you can look into. And if you’re installing solar panels, there are a variety of options for solar paneling financing as well.

The Takeaway

The Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit provide tax credits to homeowners for certain qualifying energy-saving improvements they make. Not only do these improvements help reduce energy consumption, they can also be a long term investment in your home. For instance, solar panels may help increase the value of your home, studies show.If you’re looking for ways to fund an energy-efficient home improvement project, a personal loan is one option to consider. Lantern can help you find the personal loan that’s right for you. By filling out one simple form, you’ll get offers from multiple lenders in our network. That way, you can compare different options all at once to pick the best one for your home improvement needs.

Frequently Asked Questions

What is the energy efficient home credit?

What qualifies for energy tax credit in 2023?

Is there a tax credit for replacing windows?

Does a new HVAC system qualify for a tax credit?

Photo credit: iStock/NAPA74

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About the Author

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.

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