Scroll Top

Maximize Your Tax Savings with the Energy Efficient Home Improvement Credit

HVAC Maintenance

If you’ve made—or are planning to make—energy-efficient upgrades to your home, there’s good news! Starting in 2023, the IRS offers an energy-efficient home improvement tax credit that could save you up to $3,200 each year. This credit is designed to encourage homeowners to adopt greener practices and improve energy efficiency, ultimately reducing energy consumption and saving you money. Let’s dive into the details of how you can benefit from this credit and what steps to take to claim it.

What is the Energy Efficient Home Improvement Credit?

The Energy Efficient Home Improvement Credit allows homeowners to deduct a percentage of their expenses related to qualifying energy-efficient home improvements. For improvements made after January 1, 2023, you can claim 30% of qualified expenses, including:

  • Energy-efficient home improvements such as insulation or windows
  • Residential energy property like heat pumps or water heaters
  • Home energy audits that help identify ways to increase your home’s efficiency

Key Credit Limits

While this credit offers significant savings, there are some limits you should be aware of. Here’s a breakdown of what you can claim:

  • Up to $1,200 per year for energy-efficient property and home improvements. This includes things like exterior doors, windows, insulation, air sealing materials, and home energy audits.
    • Exterior doors: $250 per door, with a total cap of $500.
    • Exterior windows/skylights: $600 total.
    • Home energy audits: $150.
  • Up to $2,000 per year for higher-cost improvements, such as heat pumps, water heaters, biomass stoves, or biomass boilers.

Importantly, there is no lifetime limit on this credit. You can claim the maximum allowable amount each year until 2033—helping you save as you continue to improve your home’s energy efficiency.

Who Can Claim the Credit?

To claim the Energy Efficient Home Improvement Credit, you must meet certain eligibility requirements:

  • The home must be your primary residence, and it must be located in the U.S.
  • Only existing homes qualify—new builds are excluded.
  • If you are using your home for business purposes, you may still qualify, but your credit will be prorated based on the percentage of the home used for personal purposes.

If your home is solely for business use, you are not eligible for the credit.

Types of Qualifying Improvements

Several types of home improvements qualify for the credit, as long as they meet certain energy efficiency standards.

  1. Building Envelope Components

These include items like insulation, exterior doors, and windows that improve your home’s energy efficiency by reducing heat loss or gain. For example, Energy Star doors and windows meet qualifying criteria. The credit limits apply to specific items, such as:

  • Exterior doors: $250 per door, $500 total.
  • Exterior windows/skylights: $600 total.
  1. Home Energy Audits

A home energy audit is another qualifying expense for the tax credit. It involves an inspection to identify ways to make your home more energy efficient. The audit must include a written report detailing improvements and must be performed by a qualified auditor. Starting in 2024, the audit must be done by a certified home energy auditor.

  1. Residential Energy Property

If you install new residential energy property like high-efficiency air conditioners, water heaters, or furnaces, you can claim up to $600 for each eligible item. Additionally, heat pumps and biomass stoves that meet certain efficiency standards qualify for a credit up to $2,000 annually.

How Subsidies and Rebates Affect Your Credit

It’s important to note that if you receive any subsidies, rebates, or incentives for purchasing or installing energy-efficient property, these must be subtracted from the amount you claim for the credit. This includes:

  • Utility subsidies for energy-efficient products.
  • Rebates that directly affect the purchase price of the property, such as those provided by manufacturers, distributors, or installers.

However, state energy efficiency incentives may not affect the federal credit calculation unless they meet certain criteria.

How to Claim the Credit

To claim the Energy Efficient Home Improvement Credit, you’ll need to file Form 5695 (Residential Energy Credits Part II) with your tax return. Be sure to claim the credit for the year when the property was installed, not when you purchased it.

You can follow the IRS’s step-by-step guides for specific instructions on how to claim:

  • Energy-efficient home improvements
  • Home energy audits
  • Residential energy property

Save Money & Be Environmentally Friendly

The Energy Efficient Home Improvement Credit is an excellent way to save money while making environmentally friendly improvements to your home. Whether you’re upgrading insulation, installing energy-efficient windows, or adding a heat pump, you can reduce your carbon footprint and lower your energy bills. By taking advantage of this credit, you’re not only investing in your home but also contributing to a more sustainable future.

Make sure to stay updated on the requirements and take full advantage of this credit before it expires in 2032. If you’ve made any energy-efficient improvements, be sure to file the necessary paperwork when you file your taxes—and keep an eye out for any potential updates or changes from the IRS.

If you are looking to install a new HVAC system in 2025 in the VA or MD area, Call us today at (301) 200-5891 to schedule your FREE IN-HOME QUOTE!