It’s been over a year since the Inflation Reduction Act (IRA) was signed into law, but many homeowners have yet to take advantage of the savings it can provide them. If you haven’t claimed any of the money owed to you via tax credits for energy efficient home improvements, keep reading! We explain exactly what’s in the Inflation Reduction Act for homeowners so you can get your share of the billions allocated to clean energy upgrades.
What’s In the Inflation Reduction Act for Homeowners?
The Inflation Reduction Act is a massive investment in clean energy and climate action. It allocates billions of dollars to a variety of channels, including tax breaks for homeowners.
Inflation Reduction Act Tax Credits
There are two tax credits homeowners can use to make improvements that save energy (and money).
The Energy Efficient Home Improvement Credit
The Energy Efficient Home Improvement Credit used to be called the Nonbusiness Energy Property Tax Credit—a mouthful, we know. The tax credit was revived as part of the Inflation Reduction Act and increased to offer homeowners more substantial savings. It’s worth 30% of your project costs for a variety of energy efficiency home upgrades, with annual limits that vary by service.
The following energy efficiency upgrades are eligible for a 30% credit, with a $1,200 total combined annual limit:
- Insulation and air sealing, up to $1,200
- Energy efficient windows, up to $600
- Exterior doors, up tp $500
- Electrical panel upgrades, up to $600
Heat pumps qualify for a separate 30% credit, with a $2,000 annual limit.
- Heat pump HVAC systems, up to $2,000
- Heat pump water heaters, up to $2,000
You can claim the Energy Efficient Home Improvement Tax Credit multiple years in a row, so you can make upgrades as they’re needed (like when your water heater dies) and save every time.
Residential Clean Energy Credit (Solar Tax Credit)
The Residential Clean Energy Credit is more commonly known as the federal solar tax credit. It’s worth 30% of your total solar panel and/or solar battery installation costs, with no maximum! The solar tax credit significantly reduces the upfront cost of a solar installation, making it easier and more affordable for you to install solar panels and take full control of your electric bills.
How the Inflation Reduction Act Tax Credits Work
The Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit are both federal tax credits that reduce your federal income tax liability for the year you install your upgrades. That means, when you file your annual tax return, you can reduce what you owe by whatever your tax credit is worth. Let’s say, for example, you install a heat pump HVAC system for $15,000. You can claim 30% of that amount, up to $2,000. Since 30% of $15,000 is more than the annual limit, you would receive the full $2,000 credit. Then, you apply that $2,000 to your federal taxes owed, bringing down the amount.
Claiming Your Inflation Reduction Act Tax Credits
Claiming your tax credits is a simple process that can be done when you file your federal income taxes for the year you make qualifying upgrades.
- To claim the Energy Efficient Home Improvement Credit, complete IRS Form 5695 Part 1
- To claim the Residential Clean Energy Credit, complete IRS Form 5695 Part 2
Attach the completed form when you submit your tax return!
Disclaimer: We’re energy efficiency experts, not tax experts. We always recommend consulting a tax professional before filing.
Neeeco is a highly experienced home energy efficiency expert and we are here to make your energy-saving home upgrades as affordable as possible. We can help you take advantage of federal tax credits and incentives to make your energy efficiency home upgrades as affordable as possible. To learn more, schedule a no-cost Home Energy Assessment today. It’s the first step toward a more energy efficient home!