The Inflation Reduction Act provides for the extension and expansion of energy tax credits for the upgrading of homes to make them more energy efficient.
With the Inflation Reduction Act being officially law, homeowners can now save money on almost any home improvements they have made to increase their home’s energy efficiency.
The bill’s key objectives include addressing climate change and reducing global warming.
Table of Contents
- 1 Incentives for Americans to Go Green
- 2 The Residential Clean Energy Credit
- 3 The Solar Investment Tax Credit (ITC) Has been Extended
- 4 ITC Solar Panel Tax Credit
- 5 Windows, Doors, and Skylights
- 6 What are ENERGY STAR Tax Credits?
- 7 Asphalt and Metal Roofs
- 8 Non-Solar Water Heaters
- 9 Home Insulation
- 10 Biomass Stoves
- 11 HVAC, AC, Heating, and Ventilation
- 12 Geothermal Heat Pump
- 13 Wind Turbines
- 14 The Future of Green Energy Tax Credits
- 15 How to File Taxes Online in 3 Simple Steps With TurboTax
Incentives for Americans to Go Green
There are new incentives and government rebates for Americans to go green and save some green, even though the Act primarily supports corporations in adopting more environmentally friendly practices, nonbusiness purchases are also rewarded for switching to renewable energy.
For the 2022 tax year, the credit is reinstated, and the previous regulations are in effect. The credit will, however, be worth 30% of the costs of all permissible home renovations performed in any given year beginning in 2023.
The Residential Clean Energy Credit
The present Residential Energy Efficient Credit which also receives a new name under the Inflation Reduction Act is an energy tax credit that many homeowners can claim. The new name is the Residential Clean Energy Credit.
The period in which you claim the credit is also extended through 2034 from its original 2024 expiration date. The Inflation Reduction Act also increases the credit amount in addition to changing the name and lengthening the credit.
Previously, the credit was worth 26% of the cost to install qualifying systems that generate electricity, heat water, or control the temperature in your home using solar, wind, geothermal, biomass, or fuel cells. The fuel cell equipment tax credit is capped at $500 for every half kilowatt of capacity.
Additionally, the credit was supposed to be worth 23% in 2023 before it expired in 2024. The credit amount increases to 30% under the Inflation Reduction Act between 2022 and 2032. After that, it decreases to 26% in 2033 and 22% in 2034. After 2034, the credit will then become invalid.
The Solar Investment Tax Credit (ITC) Has been Extended
Through the solar investment tax credit (ITC), often known as the federal solar tax credit, the federal government has encouraged homeowners to transition to solar power since 2005.
The amount of this credit has changed over time, but at the moment homeowners can now deduct 30% of the total cost of installing a solar system on their federal taxes. By 2033 and 2034, the ITC will be down to 26% and 22%, respectively. Without a renewal by Congress, it will expire in 2035.
Additionally, it will be extended to include the price of some biomass stoves and boilers, electric panels and associated hardware, and home energy audits. However, the credit will no longer apply to roofing or air circulation fans.
The $500-lifetime restriction will also be changed to a $1,200 yearly credit amount limit (the lifetime limit on windows will go away, too). Therefore, you can claim the full credit each year if you spread out your eligible home improvement projects.
Additionally, and much more favorably, the annual limits for particular classes of qualified improvements will change. They will start in 2023.
ITC Solar Panel Tax Credit
The Federal Solar Panel Investment Tax Credit was supposed to decrease from 26% in 2022 to 22% in 2023 under previous legislation.
According to the new law, homeowners will be allowed to claim a tax credit equal to 30% of the price of a residential solar installation until 2032. The credit subsequently reduces to 26% in 2033 and then 22% in 2034 before disappearing.
Don’t worry if you recently installed solar panels and are kicking yourself for not waiting. Anyone who installed residential solar in 2022 before the bill’s passage is eligible to retroactively claim the 30% credit under a clause in the legislation.
Storage for batteries is provided. The 30% credit can also be used by homeowners for energy storage, according to the measure. This includes battery storage systems put in after a solar panel installation for a house.
This new bill offers much-needed relief to many who have been impatiently awaiting the arrival of batteries, fearing that the credit might expire before they could be installed.
Windows, Doors, and Skylights
Did you make any energy-efficient upgrades with new windows, doors, or a skylight? Then, you could be eligible for a Federal windows tax credit.
As long as the upgrades meet Energy Star standards, you will qualify to claim the energy tax credit. This credit is worth 30% of the cost and a maximum of,
- $250 for an exterior door ($500 total for all exterior doors)
- $600 for exterior windows and skylights
What are ENERGY STAR Tax Credits?
- Central air conditioning – The criteria for a $300 tax credit are met by air conditioners that have earned the ENERGY STAR Most Efficient designation.
- Air-source heat pumps – ENERGY STAR certified heat pumps are eligible for a $300 tax credit.
- Gas, propane, or oil boilers – ENERGY STAR Most Efficient gas boilers satisfy the standards for this $150 tax credit, which also covers installation expenses.
- Natural gas, propane, or oil furnace – Gas furnaces that are ENERGY STAR certified (apart from those that are just for the South of the United States) satisfy the criteria for the $150 furnace tax credit. Fans that satisfy the criteria for the $150 fan tax credit are included in gas and oil furnaces that have gained the ENERGY STAR certification.
- Advanced main air circulating fans – To be eligible for a $50 tax credit, this fan must use no more than 2% of the total energy used by your furnace.
- Water heaters (non-solar) – The majority of heat pump water heaters with the ENERGY STAR certification qualify for the $300 tax credit (i.e. those with an energy factor of 2.2 or more). The $300 credit is also available for water heaters made of gas, oil, or propane that have a thermal efficiency of at least 90% and an energy factor of 0.82 or higher.
- Windows, Doors, and Skylights – You are qualified for a tax credit equal to 10% of the cost (excluding installation) of any windows, doors, or skylights you replaced or installed if they have earned the ENERGY STAR, up to a maximum of $500 for doors and $200 for windows and skylights. If you added a window or door when there wasn’t one before, you can also claim the credit.
- Roofs (Metal and Asphalt) – A credit of 10% of the cost, up to $500, is available for roofing materials that meet ENERGY STAR requirements and have the proper pigmented coatings and cooling granules. This credit does not cover installation costs.
- Insulation – Standard bulk insulation items such batts, rolls, blow-in fibers, rigid boards, expanding spray, and pour-in-place can be eligible for up to $500 in cost-savings, or 10% of the cost, excluding installation fees. You can still receive credit if you decide to install the insulation/home sealing goods yourself.
- Products that air seal – Products that reduce air leaks can also qualify, as long as they come with a Manufacturer’s Certification Statement, including:
- Spray foam in a can, designed to air seal
- Caulk designed to air seal
- House wrap
Asphalt and Metal Roofs
If your roof meets Energy Star standards, your roof will reflect more of the sun and reduce surface temperatures by up to 100 F. Metal roofs with pigmented coatings, and asphalt roofs with cooling granules will qualify for this.
You can claim back 10% of the cost up to a maximum of $500.
Non-Solar Water Heaters
Water heaters using oil, gas, or propane are all eligible as long as they have what’s known as an energy factor of 0.82 or up. They must also come with a thermal efficiency of 90% or up.
If you happen to have an electric heat-pump heater, then it must have an energy factor of at least 2.0.
This credit is worth a flat $300.
Home insulation products may also qualify for a tax credit if they meet Energy Star standards. In addition, anything that reduces air loss, weather stripping, or caulk can also qualify if you possess a certification statement from the manufacturer.
You can claim 30% of the cost, with a maximum limit of $500.
Biomass stoves burn wood and other wood waste products to create energy. These also qualify for a $300 tax credit, but they must have a thermal efficiency of 75%, and they must meet EPA standards under the 2020 Clean Air Standards document.
HVAC, AC, Heating, and Ventilation
Certain products used for AC, ventilation, and heating will also qualify for a tax credit. For AC’s, the tax credit is worth $300, heat pumps are worth $300, and boilers using gas, propane, or oil are worth $150. In addition, any furnaces using natural gas, oil, or propane can yield a $150 tax credit.
You should check for details on the Energy Star website as the limits are stringent.
Geothermal Heat Pump
The tax credit for installing geothermal heat pumps was extended to 2034 in August 2022. The tax credit is available for geothermal technology that utilizes the underground storage of solar energy for heating and cooling and satisfies ENERGY STAR standards at the time of installation.
There is no cap on the credit’s maximum amount or the maximum number of claims that may be made.
A residential wind turbine is another highly efficient upgrade. But, again, like with geothermal pumps, you can claim back 30% of the total cost, there’s no upper dollar limit, and you can claim it on second homes.
The Future of Green Energy Tax Credits
Under the Inflation Reduction Act, the credit amount jumps to 30% from 2022 to 2032. It then falls to 26% for 2033 and 22% for 2034. The credit will then expire after 2034. So, it would be best to keep all certificates, statements, and receipts.
How Can I Claim My Energy Tax Credits?
When you file your taxes online, you can be ensured that you will be able to claim the energy tax credit. The tax filing software can recommend the best choices and show you which deductions and credits you qualify for. They also do the math and fill in all the correct tax forms.