Note: Section 13301 of The Inflation Reduction Act of 2022 (H.R. 5376) modified this tax credit and extended the expiration date. Among other changes, the bill replaced the credit’s previous $500 lifetime limit per taxpayer with an annual limit of $1,200.
Property placed in service before 1/1/2023:
This credit applies to energy efficiency improvements in the building envelope of existing homes and for the purchase of high-efficiency heating, cooling and water-heating equipment. Efficiency improvements or equipment must serve a dwelling in the United States that is owned and used by the taxpayer as a primary residence. The maximum tax credit for all improvements made in 2005 - 2022 is $500. The cap includes tax credits for any improvements made in any previous year. If a taxpayer claimed $500 or more of these tax credits in any previous year, any purchases made in 2006 - 2022 will be ineligible for a tax credit.
Building Envelope Improvements
Owners of existing homes may receive a tax credit worth 10% of the cost of upgrading the efficiency of the building's envelope. Installation (labor) costs are not included and the credit is capped at $500 for all improvements. To be eligible for the credit, the improvement must meet the prescriptive requirements established for it under the 2009 International Energy Conservation Code (including supplements). The following improvements are eligible for the tax credit:
Heating, Cooling and Water-Heating Equipment
Taxpayers who purchase qualified residential energy-efficient property may be eligible for a tax credit. The credit is equal to the full cost of the equipment up to the following caps:
Property placed in service after 12/31/2022:
H.R. 5376 of 2022 modified the value of this tax credit, making it 30% of the cost of an item or improvement. Each item or improvement has a separate tax credit cap as shown below, and a taxpayer cannot claim more than $1,200 in total tax credits per year, except as specified.
Building Envelope Improvements
Owners of existing homes may receive a tax credit worth 30% of the cost of upgrading the efficiency of the building's envelope. Installation (labor) costs are not included and, the improvement must meet the specified efficiency standards. The following improvements are eligible for the tax credit:
Qualified Energy Property
Taxpayers who purchase qualified residential energy-efficient property may be eligible for a tax credit. The equipment must meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year in which the equipment is placed in service, and/or any additional standards specified below. The credit is equal to 30% of the cost of the equipment. Note, heat pumps, heat pump water heaters, and biomass stoves have caps that exceed the otherwise $1,200 cap for this credit:
The Energy Policy Act of 2005 established the tax credit for energy improvements to existing homes. The credit was originally limited to purchases made in 2006 and 2007, with an aggregate cap of $500 for all qualifying purchases made in these two years combined. There were also separate individual caps for the different equipment types. The Energy Improvement and Extension Act of 2008 (H.R. 1424: Div. B, Sec. 302) of 2008 reinstated the credit for 2009 purchases and made other minor adjustments. The American Recovery and Reinvestment Act of 2009 further extended the credit to include improvements made in 2010 and replaced the $500 aggregate cap with a $1,500 aggregate cap for improvements made in 2009 and 2010. This credit has since been renewed several times, but the credit was reduced to its original form and original cap of $500, only to be increased again by the Inflation Reduction Act.
|Incentive Type:||Personal Tax Credit|
|Administrator:||U.S. Internal Revenue Service|
|Eligible Renewable/Other Technologies:||
|Incentive Amount:||Varies (see below)|
For purchases made in 2023 - 2032: annual maximum of $1,200, with the exception of some technologies as documented below
For purchases made in 2005 - 2022: Aggregate amount of credit is limited to $500. Taxpayer is ineligible for this tax credit if this credit has already been claimed by the taxpayer in an amount of $500 in any previous year.
For purchases made in 2009 or 2010: Aggregate amount of credit for all technologies placed in service in 2009 and 2010 combined is limited to $1,500
|Equipment Requirements:||Equipment must be new and in compliance with all applicable performance and safety standards as described in tax code|
|Name:||26 USC § 25C|
|Date Enacted:||8/8/2005 (subsequently amended)|
|Name:||IRS Form 5695: Residential Energy Credits|
|Name:||Instructions for IRS Form 5695: Residential Energy Credits|
|Name:||Public Information - IRS|
|Organization:||U.S. Internal Revenue Service|
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This information is sourced from DSIRE; the most comprehensive source of information on incentives and policies that support renewables and energy efficiency in the United States. Established in 1995, DSIRE is operated by the N.C. Clean Energy Technology Center at N.C. State University.
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