The Inflation Reduction Act of 2022 expanded the amount of available energy credits and the type of expenses that qualify for the credits. The two credits available are the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit. The following information will help you determine if you are eligible to claim credits for expenses you have already incurred or for expenses you plan to incur.

ENERGY EFFICIENT HOME IMPROVEMENT CREDIT

Who can claim this credit?

Homeowners who make energy efficient improvements to their primary home. The home must be located in the United States. The home cannot be a new home, but must be an existing home to which you make qualifying energy efficient improvements. The credit is not available for property which you own, but do not live in (i.e. property held out for rent). However, a second home used as a residence and a tenant renting a home may also qualify for the credit.

Property which is used solely for business does not qualify for the credit. If you use a portion of your principal home for business (e.g. a home office), then the amount of the credit depends on what portion of the home is used for business. If 20% or less of the home is used for business, you may claim the full amount of the credit. If you use more than 20% of the home for business, then the credit is based on the share of expenses allocable to nonbusiness use.

What expenses qualify for the credit?

Expenses for home improvement must meet energy efficiency standards and the system/equipment must be new, not used. The expenses must be incurred between January 1, 2023 and before January 1, 2033. For more information on the expenses which qualify for the credit, go to: https://www.energy.gov/sites/default/files/2023-02/Tax%20Credit%20Table.pdf

How much is the credit?

The actual amount of the credit you would be entitled to depends on the improvement made to the home. For some improvements you are entitled to claim 30% of the qualified expense (e.g. insulation materials) while other qualified expenses allow 30% of the cost but with a maximum amount (e.g. a total of $600 for windows). The maximum credit allowed for all qualifying expenses is $1,200. Biomass stoves, heat pumps and heat pump water heaters have a separate limit of 30% of the expense up to $2,000.

The full amount of the credit is available each year you make qualifying energy efficient improvements to your home during the qualifying years as set forth above. The credit is nonrefundable.

RESIDENTIAL CLEAN ENERGY CREDIT

Who can claim this credit?

See above.

What expenses qualify for the credit?

The only expenses which qualify for the residential clean energy credit are for the purchase of equipment for solar electricity, wind turbines, fuel cells, battery storage, geothermal heat pumps and solar water heaters. The expenses must be incurred between January 1, 2023 and before January 1, 2033.

How much is the credit?

The credit amount is 30% of the total improvement expense in the year of installation. There is no annual maximum or lifetime limit for the credit. The credit decreases to 26% in 2033 and 22% in 2034.

REBATE PROGRAMS

Rebate programs for the purchase of energy efficient equipment may exist. However, any such programs are beyond the scope of this article. The following link may provide you information on these programs: https://www.energy.gov/scep/home-energy-rebate-programs

A WORD OF CAUTION

             As with all credits offered by the government, there will be those who will try to sell you services and equipment and promise you that the expense will be covered by tax credits. In Florida, sellers of impact resistant windows and solar panels come to mind. However, while these types of expenses may qualify for the credits, note that when it comes to windows the maximum credit per year is $600.

You also need to be aware that in order to qualify for the credit, the equipment has to meet certain efficiency standards set by the government. Before you enter into that pricey contract check the government resources to see if your purchase will qualify for the credit and what the actual amount of the credit will be. For more information on these requirements: https://www.irs.gov/credits-deductions/frequently-asked-questions-about-energy-efficient-home-improvements-and-residential-clean-energy-property-credits-energy-efficiency-requirements