The Tax Credits for Energy Efficient Upgrades are Back!

Here’s some good news! The federal tax credits for energy efficiency were extended as part of the Inflation Reduction Act (IRA) of 2022.  So, if you made any qualifying home improvements to your primary residence after December 31, 2021, you may be eligible to claim them on your taxes when you file for 2022.   

Energy Efficient Upgrades That Qualify for Federal Tax Credits 

Looking for the ENERGY STAR label makes it easy to identify products for your home that save energy, save money, and help protect the climate. Here are the highlights of ENERGY STAR certified equipment that is eligible for the tax credits.

Products That Qualify 

  • Central air conditioning – $300 for air conditioners recognized as ENERGY STAR Most Efficient. 
  • Air-source heat pumps – $300 for ENERGY STAR certified heat pumps. 
  • Natural gas, propane, or oil furnace –$150 for ENERGY STAR certified gas furnaces (except those certified for U.S. South only). Gas and oil furnaces that have earned the ENERGY STAR label use fans that meet the requirements of the $150 fan tax credit. 
  • Advanced main air circulating fans – This fan must use no more than 2 percent of your furnace’s total energy to qualify for a $50 tax credit. 
  • Water heaters (non-solar) – $300 for most ENERGY STAR certified heat pump water heaters (i.e., those with an energy factor of 2.2 or more). The $300 credit can also be claimed for water heaters including gas, oil, and propane units with an energy factor of 0.82 or more, or a thermal efficiency of at least 90 percent.  

Home Improvements That Qualify

Your home’s envelope includes the outer walls, windows, doors, and other openings. Upgrading your home’s envelope can improve the efficiency of your home and can qualify for the following tax credits:  

  • Windows, Doors, and Skylights - If you replaced any windows, doors, or skylights—or installed new ones that have earned the ENERGY STAR label—you may be eligible for a tax credit of 10 percent of the cost (not including installation) on up to $200 for windows and skylights and up to $500 for doors. You can also claim the credit if you installed a window or door where there was not one previously. 
  • Insulation - Typical bulk insulation products, such as batts, rolls, blow-in fibers, rigid boards, expanding spray, and pour-in-place, can qualify for 10 percent of the cost, up to $500—not including installation costs. If you choose to install the insulation/home sealing products yourself, you can still get the credit. 
  • Products that air seal  - Products that  reduce air leaks can also qualify, as long as they come with a Manufacturer’s Certification Statement, including: 
    • Weather stripping 
    • Spray foam in a can, designed to air seal 
    • Caulk designed to air seal 
    • House wrap   

How to Apply the Federal Tax Credits for Energy Efficient Upgrades 

Here’s the worksheet you’ll need to apply the tax credits when you file your tax return: IRS Form 5695: Residential Energy Credits. If you have questions, contact your tax preparer or the Internal Revenue Service (IRS) for more information. The Renewable Energy tax credits have also been extended and now will be available through the end of 2023. These include incentives for Geothermal Heat Pumps, Residential Wind Turbines, Solar Energy Systems, and Fuel Cells. 

What’s New for Federal Tax Credits in 2023? 

Starting January 1, 2023, new federal tax credits will be in place for 10 years – through 2032. Also, while the tax credit amount is mostly limited to 30% of the project cost, the previous lifetime cap of $500 has been changed to an annual cap of either $1,200 to $2,000 depending on the efficiency improvements you make. This means you will be able to claim credit for more projects, especially if they are spread out over multiple years.

The Energy Efficiency Home Improvement credits will be for products such as:

  • Heat Pump Water Heaters
  • Heat Pumps
  • Biomass Stove/Boilers
  • Insulation
  • Windows/Skylights
  • Exterior Doors
  • Central Air Conditioners
  • Natural Gas, Oil, Propane Water Heaters
  • Natural Gas, Oil, Propane Furnaces/Boilers
  • Electric Panel Upgrades
  • Home Energy Audits

Make sure to bookmark ENERGY STAR’s page on Federal Tax Credits for more information and updates that may be helpful as you plan your next energy efficiency home improvement project!

Author: Denise Minor-Hoes