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Energy Credits, Part 1

Energy Credits, Part 1

December 06, 2023

The Inflation Reduction Act of 2022 included numerous individual energy-efficient credits to motivate taxpayers to purchase energy-efficient home improvements and vehicles.

 

There were quite a few changes to the energy credits included in the Inflation Reduction Act of 2022, this first article discusses the qualified energy efficient home improvements credit. The next article will discuss the clean energy credit for new vehicles.

 

The old $500 lifetime limit for the Non-business Energy Property Credit is replaced with the Energy Efficient Home Improvement Credit. Beginning in 2023, there is a $1,200 maximum aggregate yearly tax credit for all building envelope components, home energy audits, and energy property. Additionally, there may be an additional aggregate yearly credit limit of $2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves or biomass boilers. The maximum total energy efficient home improvement Credit may be up to $3,200.

 

Qualified Energy Efficient Improvements must be to a principal residence in the United States and the taxpayer must be the original user of the improvement and reasonably expect to use the improvement for at least five years. Qualified energy efficiency improvements include the following:

  • Exterior doors (30% of costs up to $250 per door, up to a total of $500)
  • Exterior windows and skylights (30% of costs up to $600)
  • Insulation materials or systems and air sealing materials or systems (30% of costs)
  • Home energy audits (30% of costs up to $150)

 

Residential Energy Property Expenditures must be installed on or in connection with a dwelling unit used as a residence, not necessarily a principal residence, that is in the United States and the taxpayer is the original user of the property. Residential energy efficient improvements include:

  • Residential energy property (30% of costs, including labor, up to $600 for each item) that satisfies the energy efficiency requirements:
    • Natural gas, propane, or oil water heaters
    • Central air conditioners
    • Natural gas, propane, or oil furnaces and hot water boilers
  • Improvements to or replacements of panelboards, sub-panel boards, branch circuits, or feeders that are installed along with building envelope components or other energy property and enable its installation and use.
  • Heat pumps, biomass stoves, and biomass boilers (30% of costs, including labor) satisfying the energy efficiency requirements.

 

Any rebates received are subtracted from qualified expenses if all the following apply:

  • The rebate is based on the cost of the property.
  • The rebate comes from someone connected to the sale such as the manufacturer, distributor, seller, or installer.
  • The rebate is not given as payment for services the taxpayer provides.

 

Beginning after December 31, 2024, the following qualifications must be met to claim the residential energy property credit:

  1. The item must be produced by a qualified manufacturer.
  2. The taxpayer must include on their tax return the qualified product identification number.