Stimulus Update: How To Get Tax Credits for These 25 Home Upgrades

HVAC Worker Performing Heat Pump Maintenance.
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Thanks to provisions in the Inflation Reduction Act, a climate law passed last year, consumers are now eligible for a number of tax credits and rebates for investments related to making their homes more energy efficient. Essentially, you’ll get some money back on select purchases that help make your abode become more environmentally friendly.

These tax credits and rebates largely spring forth from three distinct pieces of law — the Residential Clean Energy Credit (RCEC), the Energy Efficient Home Improvement Credit (EEHIC) and the High-Efficiency Electric Home Rebate Act (HEEHRA). Per CNET, the following maximums apply beneath the auspices of the EEHIC:

  • Up to $1,200 a year for residential energy property items, but there are sub-limits for doors ($250 per door and $500 total), windows ($600) and home energy audits ($150).
  • Up to $2,000 a year for qualified heat pumps, biomass stoves or biomass boilers.

Each product and improvement has a specific limit within the EEHIC, according to CNET. The RCEC does not have a monetary cap.

Following is a list of 25 home upgrades eligible for tax credits and rebates under the new law.

Building Envelope Components

A home’s building envelope (or building enclosure) refers to the physical barrier separating the outside atmosphere from the conditioned environment created inside your home (from your roof to your siding, windows to exterior doors — as well as insulation, etc.). The following elements are eligible, provided they have an expected lifespan of at least five years:

  • Exterior doors that meet applicable Energy Star requirements. The tax credit for this line item amounts to $250 per door (up to $500).
  • Exterior windows and skylights that meet Energy Star Most Efficient certification requirements. You can get a credit of up to $600.
  • Insulation and air sealing materials or systems that meet International Energy Conservation Code (IECC) standards in effect at the start of the year two years before installation. The maximum credit is $1,200.
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Heating and Cooling Systems

Whether you live in a very hot climate which does not see much snow, or a more temperate zone which means you might be facing a great deal of snow over the winter, heating and cooling systems are almost certain to be part of any modern residential construction. If you’re looking to upgrade this aspect of your home, several credits and rebates are available to you.

  • Central air conditioners have a maximum credit of $600.
  • Natural gas, propane or oil water heaters have a maximum credit of $600.
  • Natural gas, propane, or oil furnaces and hot water boilers have a maximum credit of $600.
  • Oil furnaces or hot water boilers (if they meet certain energy efficiency criteria) have a maximum credit of $600.
  • Electric or natural heat pumps come with a credit up to $2,000 per year. Electric or natural heat pump water heaters also come with a credit of up to $2,000 per year.
  • Biomass stoves and boilers with a thermal efficiency rating of at least 75% come with a credit of up to $2,000 per year. Costs may include labor for installation.
  • Solar water heaters. These must be certified by the Solar Rating Certification Corporation or a comparable entity endorsed by your state. A 30% tax credit is on offer.
  • Geothermal heat pumps. These must meet Energy Star requirements in effect at the time of purchase. You can get up to a 30% tax credit.

Air-source heat pumps are a bit of a unique matter. These qualify not for a tax credit, but a rebate ($8,000 limit) which is based on your income level. If you earn less than 80% of your area’s median income, you can nab a rebate for the entire cost of the product. If you make 80 to 150% of the median income, the rebates are for 50% of the cost. The same principle applies to the following:

  • Breaker box ($4,000 limit).
  • Heat pump water heaters ($1,750 limit).
  • Electric wiring ($2,500 limit).
  • Insulation and weatherization ($1,600).
  • Electric stoves and cooktops ($840 limit).
  • Heat pump clothes dryer ($840 limit).
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Energy Efficient Wiring Upgrades, Solar Panels, and More

Costs of electrical components needed to support residential energy property — including panelboards, sub-panelboards, branch circuits, and feeders — also qualify for up to $600 in tax credits if they meet the National Electric Code and have a capacity of 200 amps or more.

Regarding solar electric panels, wind turbines and fuel cells, these are eligible for up to a 30% tax credit.

Battery storage technology is eligible for a credit of up to $500 for each half kilowatt of capacity. If more than one person lives in the home, the combined credit for all residents cannot exceed $1,667 for each half kilowatt of fuel cell capacity. Additionally, these must have a capacity of at least 3 kilowatt hours to qualify.

A Word on Home Energy Audits

A home energy audit provides a thorough analysis of your home’s energy use by a home energy auditor. This one is a little more complex.

In order to qualify, the home energy audit must include a written report and inspection that identifies the most significant and cost-effective energy efficiency improvements in regards to the home, including an estimate of the energy and cost savings with respect to the improvement.

But this is just for 2023.

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Starting in 2024, the following additional requirements come into play:

The inspection must be conducted by a qualified home energy auditor, 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 written report must be prepared and signed by a qualified home energy auditor, be consistent with industry best practices, and include the qualified home energy auditor’s name and relevant employer identification number (EIN) or other type of appropriate taxpayer identifying number. It must also include an attestation that the qualified home energy auditor is certified by a qualified certification program, along with the name of said program.

A home energy audit that meets all criteria makes you eligible for a $150 tax credit.

Applying For Home Improvement / Energy Efficiency Credits and Rebates

Now about getting these credits and/or rebates! You need to file Form 5695 with your tax return. You must claim the credit for the tax year when the upgrades/items are installed, not just bought. You can learn more about this form and process via the IRS website.

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