Energy Efficient Home Improvement Credits

HVAC Worker Performing Heat Pump Maintenance.

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If you’ve made any home improvements this year — or are planning on some upgrades before year end — you might be eligible for up to $3,200 back in tax credits.

The Energy Efficient Home Improvement Credit gives homeowners a non-refundable tax credit for making qualified eco-friendly upgrades to their homes. This includes replacing your old, crusty windows and doors or upgrading your HVAC system to a more efficient heat pump or boiler.

The credit was given a facelift in 2022 with the Inflation Reduction Act and can put real money back in your pocket. Here’s everything you need to know about the Energy Efficient Home Improvement Credit.

How To Qualify for the Energy Efficient Home Improvement Credit

To be eligible for the Energy Efficient Home Improvement Credit, the qualified improvements you make must be made at your primary U.S. residence. Your home can’t be a new build, and it must not be used for business purposes more than 20% of the time. If you use it for business purposes more than 20% of the time, you’ll get a reduced credit.

How To Claim the Credit

To claim the Energy Efficient Home Improvement Credit on your tax return, here’s what you need to do:

Gather paperwork: Depending on the upgrade you are claiming, there are paperwork requirements. You’ll need your purchase receipt and Energy Star information for certain upgrades, or written proof of the eligibility of the item purchased.
Complete IRS Form 5695: To claim the credit, you’ll need to complete IRS Form 5695. This form allows you to list the amounts for qualifying home upgrades, and calculate the amount of the credit itself. There are several pages of inputs and qualifying questions to answer to help you claim the right amount.
Attach Form 5695 and paperwork to the tax return: When you submit your tax return, you’ll need to attach the required paperwork and Form 5695 to your return to claim the credit.
Use tax software: Most modern tax software will allow you to input the information and will automatically fill out the required forms to claim the Energy Efficient Home Improvement Credit. This makes it easier than doing things by hand and can instantly calculate how much you qualify for.

How Much Can You Save?

If you claim the maximum Energy Efficient Home Improvement Credit, you can get up to $3,200 back. This includes up to $2,000 for heat pumps or biomass stoves or boilers, and up to $1,200 for other clean energy property upgrades.

The credit allows you to claim up to 30% of qualifying expenses (including installation charges). The maximum credits include:

$2,000 for heat pumps, biomass boilers or stoves
$250 per exterior door — up to $500 total
$600 for windows or skylights
$150 for energy audit
$1,200 for insulation or air-sealing materials
$600 for air conditioners, water heaters and boilers

You can combine the $2,000 heat pump credit with $1,200 worth of credits from windows, doors, audits and insulation. The maximum total energy-efficient credit for the year is $3,200.

Tax Credit Example

If you spend $6,667 on a qualifying heat pump or more, you can get the full $2,000 tax credit. And if you upgrade several doors and spend $2,500, you can get another $500 tax credit.

Upgrading a few windows for another $2,500 could net you another $600. Combine that with insulation updates or an energy audit, and you could max out the total credit at $3,200.

Energy-Efficient Home Improvements That Qualify

There are only certain energy-efficient improvements that qualify for the tax credit. Here’s which upgrades can get the credit:

Energy-Efficient Windows, Skylights and Doors

You can get a tax credit for windows and doors — $250 per door (up to $500 total), and up to $600 for windows or skylights. Keep in mind that they all must meet Energy Star requirements.

HVAC Systems and Water Heaters

Certain air conditioners, water heaters, boilers and furnaces may qualify for up to $600 per item. These systems must meet or exceed the Consortium for Energy Efficiency’s highest efficiency tier set at the beginning of the calendar year.

There’s also a $2,000 credit for heat pumps, heat pump water heaters and biomass stoves and boilers that meet or exceed the CEE highest efficiency tier and operate at a thermal efficiency rating of at least 75%.

Insulation

You can get up to $1,200 in tax credits for qualifying insulation and air-sealing material upgrades that meet the International Energy Conservation Code standards. Since these standards are updated regularly, the materials must meet the latest standard two years prior to the calendar year the materials were installed.

Home Energy Audit

If you pay for a home energy audit, you can get up to $150 in tax credits. The audit must include a written report and be performed by a certified home energy auditor. Qualifications can be found on the Dept. of Energy website.

Summary of Energy Efficient Home Improvement Tax Credits

Energy-Efficient Upgrade	Maximum Credit
Heat pumps, biomass boilers or stoves	Up to $2,000
Exterior doors	$250 per exterior door — up to $500 total
Windows or skylights	Up to $600
Energy audit	Up to $150
Insulation or air sealing materials	Up to $1,200
Air conditioners, water heaters, and boilers	Up to $600

Advanced Tips for Maximizing Energy Savings

Improving your home could help you save thousands of dollars on your income taxes. But it’s important to do your research before making any eco-friendly purchase so you’re taking full advantage of the tax incentives and rebates. Here are a few tips for maximizing your tax savings while upgrading your home:

Ask your contractor about tax incentives before performing upgrades.
If you are upgrading your HVAC system, make sure your heat pump or boiler systems qualify for the tax credit.
If you are replacing windows or doors, check the Energy Star rating to verify that your new windows and doors qualify for the tax credit.
Some states offer additional tax incentives for energy-efficient upgrades, so be sure to ask your contractor or home improvement store about local tax incentives.
Use the Energy Star rebate finder tool to find qualifying products for the Energy Efficient Home Improvement Credit.
Make sure to get the right documentation for every upgrade to ensure you can claim the tax credit.
Complete energy-efficient upgrades in the same year to maximize the tax credit each year.

Conclusion: The Long-Term Benefits of Energy-Efficient Home Improvements

Improving your home can be costly, but don’t pay more than you have to. Maximizing the Energy Efficient Home Improvement Credit can net you $3,200 in savings, and encourages homeowners to purchase more eco-friendly appliances and materials when upgrading their homes.

Make sure to do your research and find companies that sell and install qualifying products to get the most out of your tax credit. Plus, a side benefit of upgrading your home to energy-efficient products should be lower utility bills.

Takeaway

Finding and working with a financial advisor is a great idea. A financial advisor will help keep track of your finances and assist you in attaining your financial goals. While finding the right one can be overwhelming, you can decide to work with a financial advisor in your community or a virtual one.

Get to know your financial advisor options today for free!

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