Home energy credits

How it works

The energy efficient home improvement credit returns this year's official energy efficient home credit percent (not yet verified here; see the official source below) of the cost of qualifying items such as insulation, exterior doors and windows, heat pumps, and a home energy audit, subject to a yearly cap of this year's official energy efficient home credit annual cap (not yet verified here; see the official source below) with lower sub caps for some items. The residential clean energy credit returns this year's official residential clean energy credit percent (not yet verified here; see the official source below) of the cost of solar panels, solar water heaters, geothermal heat pumps, and battery storage, with no dollar cap, and unused credit carries forward. Both are nonrefundable. The improvements must meet efficiency standards the IRS lists, and the home must be in the United States and used as a residence. Congress has set end dates for these credits, and the IRS page lists what applies for a given year.

What it gives

The clean energy credit has no dollar cap and carries forward if it exceeds the year's tax.

The improvement credit resets each year, so a project spread over two years can earn two years of credit.

A home energy audit itself qualifies for part of the credit.

What it costs, or where the catch is

Both credits are nonrefundable, so a household with little tax owed receives little from them.

Labor costs count for some items and not others, which trips up estimates.

The credits have end dates set by law, and a project finished after the date earns nothing.

A worked example

Ira installs a $21,000 solar system and, the same year, $3,000 of attic insulation. If the clean energy percent were 30, the solar credit is $6,300, since $21,000 times 0.30 is $6,300. The insulation credit at 30 percent would be $900 before its cap. Her tax that year is $5,000, so the $5,000 is wiped out and the unused $1,300 of solar credit carries to next year, while the insulation credit, which does not carry, is partly lost.

Where it goes wrong

The common miss is buying equipment that does not meet the efficiency standard on the IRS list and learning at filing time that none of it qualifies.

Who confirms it for you

For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS: Energy efficient home improvement credit. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.