The hot summer sun can make it costly to cool your home—especially if you live in a warmer climate.
Thankfully, if you made any improvements to your home to make it more energy efficient recently you could see some relief in the form of home energy tax credits.
These credits, which provide as much as 30% back on energy improvements to eligible homeowners, are available once again, thanks to the Inflation Reduction Act of 2022.
Think you might qualify?
Here’s what you need to know:
What energy credits are available for homeowners?
A homeowner who made qualifying improvements to their home may claim either the Energy Efficient Home Improvement Credit or Residential Energy Clean Property Credit for the year.
To be eligible for these credits the improvements must have been to a primary residence where one spends most of the year, not a vacation home or business.
What if you use your home for business, too?
If you use your primary residence for business, too, you might not get the entire credit.
Calculate the credit for a home office is similar to calculating your home office deduction at tax time—it depends on usage:
- If the area you use for business is 20% or less of your home, you can take advantage of the entire credit.
- If the area you use for business is more than 20%, the credit is applicable to that part of expenses allocable to nonbusiness use.
- If the home office takes up 40% of the livable space, only 60% of the credit is available.
- If the home office takes up 80% of the livable space, only 20% of the credit is available.
How can I use the Energy Efficient Home Improvement Credit?
The following home improvements may qualify if they meet certain requirements.
- Exterior doors, windows, skylights, and insulation materials.
- Central air conditioners, water heaters, furnaces, boilers, and heat pumps.
- Biomass stoves and boilers
- Home energy audits
For Tax Year 2022, the allowable credit is 30%, up to a lifetime maximum of $500.
For Tax Years 2023 through 2032, the allowable credit is also 30% but the maximum in each year is $1,200 and there is no lifetime limit.
Note: The credit is non-refundable, which means it is only helpful if the taxes owed equal or exceed the credit claimed. There is also no carry-back or carry-forward provision.
What is the Residential Clean Energy Credit?
The following may qualify if they meet certain tests.
- Fuel cells (limited to $500 per kilowatt of capacity.)
- Solar electric panels
- Solar water heaters
- Wind turbines
- Geothermal heat pumps
- Battery storage technology (beginning in 2023)
Previously owned clean energy property is not eligible.
Can I take advantage of these credits on my own?
In both credits, the qualifications and adjustments can be complex.
It isn’t as simple as a flat 30% back.
Rebates, public service utilities, and state energy efficiency incentives all can play a part in the final credit earned.
To get the most out of these credits (and avoid any costly mistakes!) hire a tax professional who understands the technology and the tax law for help.
Ready to talk about how to save with these energy credits? Schedule a consult call now.