Energy Efficient Home Improvement Tax Credit
Starting back in January 2023, the Federal Government released a tax credit program that allows homeowners who have made energy efficient improvements to their primary home to get a portion of cost of materials back on their taxes as a credit. This incentive is looking to support homeowners who are putting in the work and money to make their homes greener, more energy-efficient, and less reliant on the grid. This article is going to cover this program in depth- who and what qualifies, who and what doesn’t qualify, and how to fill out the credit form for insulation and air-sealing materials or systems.
Qualifications
The following are the basic qualifications to be eligible for this program:
Improvements made to an existing home
Improvements made to the primary home of the homeowners
Home is located within the United States
Improvements made between January 1st, 2023 and 2032.
Is your home also used as your business?
If 20% or less of your home is used for business, your project is eligible for the full credit (assuming it meets all other requirements)
If more than 20% of your home is used for business, then the credit is based on the amount of improvement expenses spent on the nonbusiness portion of home
The following disqualify you from the program:
Property is a business
Property has tenants
Homeowners do not live on property
New construction homes
Types of Improvements Allowed and Maximum Credit Rewarded
Home Energy Audits
- Maximum credit: $150
Central Air Conditioners, Natural Gas or Propane Furnaces, Oil Furnaces, and Hot Water Boilers
Must meet or exceed Consortium for Energy Efficiency (CEE) highest efficiency tier in effect as of the beginning of the year installed (see if your product qualifies here)
Maximum credit: $600 per appliance (can include cost of installation)
Oil Furnaces and Hot Waters Boilers can also qualify through other criteria
Electric or natural gas heat pumps
Must meet or exceed Consortium for Energy Efficiency (CEE) highest efficiency tier in effect as of the beginning of the year installed(see if your product qualifies here)
Maximum credit: $2000/year (can include cost of installation)
Electric or Natural Gas Water Heaters
Must meet or exceed Consortium for Energy Efficiency (CEE) highest efficiency tier in effect as of the beginning of the year installed (see if your product qualifies here)
Maximum credit: $2000/year (can include cost of installation)
Biomass Stoves and Boilers
Must meet or exceed Consortium for Energy Efficiency (CEE) highest efficiency tier in effect as of the beginning of the year installed (see if your product qualifies here)
Must have at least 75% thermal efficiency
Maximum credit: $2000/year (can include cost of installation)
Exterior doors
Must meet Energy Star requirements
Maximum credit: $250/door and $500 total
Exterior windows and skylights
Must meet Energy Star requirements
Maximum credit: $600 total
Insulation and Air-Sealing Materials or Systems
Must meet IECC standards in effect as of the beginning of the calendar year 2 years prior (for example, insulation installed in 2025 must meet the IECC stands in effect on January 1st, 2023)
Maximum credit: $1200 total
All Thermal Shop insulation and air-sealing installs already meet the standards set by the IECC
Documentation and Form 5695
To get your tax credit, you only have to fill out Form 5695 and submit it with your taxes. However, because anyone can get audited at any time, it is smart to save all documentation in case you need to back up your claim. We recommend saving all purchase receipts, installation records, any window or door stickers (Energy Star/ National Fenestration Rating Council labels), as well as product manuals.
Form 5695 and Insulation and Air-Sealing Materials or Systems
After filling out your basic information like name and address, see line 18 for Insulation and Air-Sealing Materials.
In line 18a, fill out the total cost of the materials for your insulation/air-sealing home improvement project (for example, $1000).
Multiply your materials total by .3 (for example, $1000 x.3 = $300).
Enter this new total into line 18b ($300). You will receive a $300 tax credit!
Resources:
Program Homepage
https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit
How to Apply
Form 5695
https://www.irs.gov/pub/irs-pdf/f5695.pdf
Energy Star
Energy Efficient Products
