Taking advantage of available tax credits can help you save money while making your home more energy-efficient.

If you made a qualified energy-efficient improvement to your home after January 1, 2023, you might qualify for a tax credit of up to $3,200, and you can claim the credit through 2032. Here are the key details you need to know to determine if you qualify and how to maximize your savings.

As explained by the IRS, beginning January 1, 2023, the credit equals 30% of certain qualified expenses, including:

• Applicable improvements installed during the taxable year
• Residential energy property
• Home energy audits

The annual allowable credit does have limits and there are limits on the amount of credit for certain types of qualified expenses. Each year, the maximum credit you can claim is:

• $1,200 for energy-efficient property costs and certain energy-efficient home improvements. Limits apply on exterior doors ($250 per door and $500 total), exterior windows and skylights ($600), and home energy audits ($150)
• $2,000 per year for qualified heat pumps, water heaters, biomass stoves, or biomass boilers

This tax credit does not have a lifetime dollar limit. The maximum annual credit can be claimed every year that you make eligible improvements or install energy-efficient property until 2033. Beginning in 2025, however, no credit will be allowed on each item placed in service unless a qualified manufacturer produced the item and the item PIN is reported by the taxpayer on their tax return.

The credit is nonrefundable and you can’t get back more on the credit than you owe in taxes. In addition, it isn’t possible to apply any excess credit to future tax years.

Who Qualifies?

Making energy-efficient improvements to your home is a great way to reduce energy costs, but who exactly is eligible for this tax credit? Homeowners who make qualified improvements to their primary residence can claim the credit. However, landlords and other property owners who don’t live in the home can not claim the credit. Understanding these eligibility requirements can help ensure you claim the credit correctly.

Building Envelope Tax Credits

Enhancing your home’s insulation and sealing can lead to significant energy savings—and tax benefits. Building envelope components must have an expected lifespan of at least five years to qualify. These improvements must meet specific energy efficiency standards to qualify. While labor costs for installation do not qualify, the materials themselves can help you maximize your tax savings. Qualified components include new:

• Exterior doors – meeting Energy Star requirements that apply. Credit is limited to $250 per door and $500 total.
• Exterior windows and skylights – meeting Energy Star Most Efficient certification requirements. Credit is limited to $600 total.
• Insulation and air sealing materials or systems – meeting International Energy Conservation Code (IECC) standards in effect two years before the calendar year in which such component was placed in service (e.g. materials or systems installed in 2025 must meet the IECC standard in effect on January 1, 2023). These items don’t have a specific credit limit other than the maximum credit limit of $1,200. The only types of qualifying property that don’t have to meet the qualified manufacturer and PIN requirements are insulation and air sealing materials or systems.

Home Energy Audits

A valuable tool for identifying ways to improve your home’s energy efficiency is a home energy audit—and it may also qualify for a tax credit of up to $150. Eligibility requirements state that the audit must: 

• Include a written report and inspection that identifies the most significant and cost-effective energy efficiency improvements with respect to the home, including an estimate of the energy and cost savings with respect to such improvement.
• Be conducted and prepared by a home energy auditor.

Additional certification requirements started in 2024. If you’re considering an energy audit, ensuring compliance with these requirements will be key to securing the credit.

• A qualified home energy auditor must conduct the inspection. This is defined as an individual who is certified by one of the qualified certification Programs listed on the Department of Energy certification programs for the Energy Efficient Home Improvement Credit (Section 25C) at the time of the audit, or under the supervision of a qualified home energy auditor.
• The home energy auditor must prepare and sign the written report, which must be be consistent with industry best practices, and include:
  • The auditor’s name and relevant employer identification number (EIN) or other type of appropriate taxpayer identifying number.
  • An attestation that the qualified home energy auditor is certified by a qualified certification program
  • The name of the qualified certification program

Residential Energy Property

Qualified residential energy property, including high-efficiency central air conditioners, water heaters, and furnaces, may be eligible for a credit of up to $600 per item. It must meet or exceed the Consortium for Energy Efficiency (CEE) highest efficiency tier, not including any advanced tier, in effect at the beginning of the year when the property is installed. Qualified property includes new:

• Central air conditioners
• Natural gas, propane, or oil water heaters
• Natural gas, propane, or oil furnaces and hot water boilers

Oil furnaces or hot water boilers can also qualify through other efficiency criteria.

Costs of electrical components needed to support residential energy property, including panelboards, sub-panelboards, branch circuits, and feeders, also qualify for the credit if they meet the National Electric Code and have a capacity of 200 amps or more. There is a limit of $600 per item.

This credit, plus the credits for home efficiency audits and building envelope components, cannot exceed $1,200 per year.

Energy property – Heat pumps and biomass stoves and boilers

Eligible heat pumps and biomass stoves or boilers that meet CEE efficiency standards may qualify for a credit of thirty percent (30%) of the cost, up to $2,000 per year. The cost includes the property, which must have a thermal efficiency rating of at least 75% and labor. These improvements not only contribute to a more sustainable home but also offer significant financial incentives. Qualified property includes new:

• Electric or natural gas heat pumps
• Electric or natural gas heat pump water heaters
• Biomass stoves and boilers

How to claim the Energy Efficient Home Improvement Credit

Claiming your tax credit is a straightforward process if you have the proper documentation. You must file Form 5695, Residential Energy Credits Part II, with your tax return, and the credit must be claimed for the tax year in which the property is installed—not just purchased.

Taking advantage of tax credits for energy-efficient home improvements can lead to valuable savings. If you’re are planning to make upgrades and have questions about the details so you can make informed decisions and optimize your tax benefits, contact your tax professional. Speaking with an expert can help ensure whether you qualify and how to claim the credit correctly. Sassoon Cymrot Law tax attorneys are also available to discuss the nuances of credits not addressed in this article.