If you gave your home an eco-friendly makeover in 2024, don’t forget to explore the IRS' new and improved energy tax credit for additional savings. The tax credit is designed to help homeowners who make energy-efficient upgrades, such as installing solar panels, upgrading insulation, or purchasing energy-efficient appliances. With these new incentives, you can significantly reduce the cost of these upgrades while also lowering your carbon footprint. Be sure to review the updated eligibility requirements and available credit amounts, as this is an excellent opportunity to save on both your taxes and your energy bills for years to come.
If you made a qualifying home improvement in 2024, you may be able to recoup up to 30% of the cost through the energy efficient home improvement credit.
There’s a $1,200 annual credit limit for purchasing items such as energy-efficient doors or windows, and a $2,000 annual credit limit for heat pumps and biomass stoves or boilers.
You can claim the home improvement credit by attaching Form 5695 to your tax return.
What Are Energy Tax Credits?
The federal government offers two types of energy tax credits to encourage consumers to invest in energy-efficient upgrades and products.
The Energy Efficient Home Improvement Credit helps offset the costs of certain home improvements, such as installing heat pumps, insulation, and energy-efficient windows.
The Residential Energy Tax Credit (also known as the Solar Tax Credit) applies to the purchase and installation of eligible solar energy systems and other qualifying renewable energy property, helping to reduce the financial burden of transitioning to sustainable energy solutions.
What is the energy efficient home improvement credit?
The energy efficient home improvement credit is a tax benefit that can help homeowners cover costs related to qualifying improvements made from 2023 to 2032.
The maximum energy efficient home improvement credit is $3,200 — a combination of $1,200 for home improvements and $2,000 for heat pumps and biomass stoves or boilers. You can only claim expenses made in 2024 on the return you file in 2025.
Previously, the credit was capped at a $500 lifetime limit. But thanks to the Inflation Reduction Act of 2022, the new limits are annual. This means that homeowners can strategically purchase eligible upgrades each year to take advantage of the credit during its 10-year availability.
Which projects qualify for the home improvement part of the credit?
You can claim 30% of the cost of energy-efficient home upgrades, up to a maximum credit of $1,200. Check with the manufacturer, retailer or Energy Star website to ensure the product is eligible for the tax credit.
Note, however, that some types of improvements — such as energy audits, residential energy property, and energy-efficient doors, windows and insulation — come with additional limitations.
Residential energy property
You can claim up to $600 per item for qualifying residential energy property and the cost of their installation. This includes new air conditioners, furnaces, and water boilers and heaters. Support systems like panelboards and feeders may also qualify.
Energy-efficient doors, windows and insulation
Exterior doors have a limit of $250 per door and a total limit of $500.
Exterior windows and skylights have a $600 total limit.
Insulation and air sealing materials or systems have no additional limit outside of the general $1,200 maximum.
Note, though, the 30% credit maximum clause. So, for example, if you spent $1,200 on a new energy-conserving insulation system, the most you’ll get back on that investment through the credit is $360. Also, keep in mind that labor costs for the installation of doors, windows and insulation don’t count toward the credit.
Which projects qualify for the heat pump part of the credit?
Heat pumps and biomass stoves or boilers have a credit limit of 30% of costs up to $2,000 for 2024 expenses. New heat pumps, water heaters, and biomass stoves and boilers qualify. And one perk: the cost of installation also counts toward the credit.
Who qualifies for this energy tax credit?
To qualify for the energy efficient home improvement credit, the home has to be your primary residence and located in the U.S. It can’t be newly built and generally also can’t be used solely as a business. However, if you use your home as a business 20% of the time or less, you can still claim the full credit amount. If your home serves as a business more than 20% of the time, the credit amount may decrease.
How to claim the home improvement credit
You can claim the energy efficient home improvement credit by attaching Form 5695, Residential Energy Credits, to your tax return. Have all your documentation handy, as you’ll need to know the exact costs of each expense to claim the credit.
Is the energy efficient home improvement credit refundable?
The energy efficient home improvement credit is nonrefundable, and you can’t put any leftover credit toward a future tax bill. A nonrefundable credit lowers your tax bill by your credit amount, but if it dips your tax bill below zero, you won’t get the excess credit back as a tax refund.