IRS Update Reveals How Homeowners Could Save Thousands

The Internal Revenue Service (IRS) is urging taxpayers to make energy-efficient updates to their homes, which could help them save thousands of dollars by qualifying for home energy credits.

Taxpayers who have made energy-efficient improvements to their home after January 1, 2023 may qualify for a tax credit up to $3,200. Changes must be made to a homeowner’s primary residence for taxpayers to be able to claim credits. Renters can also claim home energy credits, as well as owners of second homes used as residences, while landlords cannot do so, according to the IRS requirements.

The credit amounts and types of qualifying expenses were expanded by the Inflation Reduction Act (IRA) introduced by the Biden administration in 2022. Taxpayers can claim two types of credits—the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit—for the year they made the qualifying changes to their homes.

When it comes to the Energy Efficient Home Improvement Credit, eligible taxpayers would get a credit equal to 30 percent of certain qualified expenses. This includes energy efficient improvements such as: the installation of exterior doors, windows and skylights; insulation and air sealing materials or systems; residential energy property expenses such as natural gas, propane or oil water heaters or natural gas, propane or oil furnaces and hot water boilers; heat pumps, water heaters, biomass stoves and boilers; and home energy audits of a main home.

Claimants can receive up to $1,200 per year for energy property costs and certain energy-efficient home improvements. That includes limits on doors, $250 per door and $500 total; windows, $600; and home energy audits, $150. They can also get up to $2,000 per year for qualified heat pumps, biomass stoves or biomass boilers.

The credit is nonrefundable, the IRS said, which means taxpayers “cannot get back more from the credit than what is owed in taxes and any excess credit cannot be carried to future tax years.”

The Residential Clean Energy Credit is available to taxpayers who have invested in energy improvements for their main home, such as solar, wind, geothermal, fuel cells or battery storage.

This credit, too, equals to 30 percent of the costs of new, qualified clean-energy equipment for a home in the U.S. installed anytime between 2022 through 2032.

The expenses that count toward getting this credit include the installment of: solar electric panels; solar water heaters; wind turbines; geothermal heat pumps; fuel cells; and battery storage technology (beginning in 2023).

There are a few caveats: solar water heaters must be certified by the Solar Rating & Certification Corporation, or a comparable entity endorsed by the applicable state; geothermal heat pumps must meet Energy Star requirements in effect at the time of purchase; and battery storage technology must have a capacity of at least 3 kilowatt-hours.

This is also a nonrefundable credit, meaning taxpayers cannot receive more money than the amount they owe in taxes. Taxpayers can claim this credit every year they install energy-efficient measures to eligible property on or after January 1, 2023, and before January 1, 2033.

You can check all the requirements on the IRS website, here.