The U.S. tax code is currently offering generous tax credits to homeowners who make energy-efficient improvements to their homes. Thanks to the Inflation Reduction Act signed by the Biden Administration, there are now numerous ways for individuals to save on their federal income taxes by making these improvements. The U.S. Department of Energy’s Energy Star program notes that homeowners can save up to $3,200 annually through home energy tax credits. One tip is to look for the Energy Star label when purchasing new appliances, as they are likely to qualify for an energy credit.
There is a variety of home energy improvements that qualify for tax credits, including exterior doors, windows, skylights, insulation materials, central air conditioners, water heaters, furnaces, boilers, heat pumps, biomass stoves and boilers, home energy audits, solar, wind, and geothermal power generation, solar water heaters, fuel cells, and battery storage (beginning in 2023). The IRS has specific rules regarding these credits, including limits on how much can be deducted. For 2023 through 2032, individuals can write off 30%, up to a maximum of $1,200. Heat pumps, biomass stoves, and boilers have a separate annual credit limit of $2,000 with no lifetime limit.
One important aspect to remember is that individuals can claim more than one of these credits. The credits are available for 30% of costs, up to $2,000, and can be combined with other credits for qualified upgrades made in one tax year. This means that if a homeowner replaces their furnace with a heat pump and installs solar panels, they can claim more than one credit, according to the Department of Energy. It is advised to keep receipts for any energy-related purchases to claim these credits.
For those interested in learning more about the specific guidelines for these tax credits, a more detailed guide is available. In terms of larger tax planning, individuals are encouraged to consider replacing major appliances, windows, doors, or heating/air conditioning units with the most energy-efficient options available. This not only leads to a lower tax bill but also lower energy costs and a reduced carbon footprint. By going green with these upgrades, homeowners can benefit financially and environmentally.
