Federal Tax Credits for Energy Efficiency

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The Inflation Reduction Act of 2022 has paved the way for Americans to enhance the energy efficiency of their homes and buildings. With federal tax credits and deductions, homeowners can now reduce energy costs and demand while transitioning to cleaner energy sources.

Available Federal Tax Credits

Homeowners can benefit from the revised and extended Residential Clean Energy credit. This offers a 30% income tax credit for clean energy equipment such as rooftop solar, wind energy, geothermal heat pumps, and battery storage until 2032. The credit will then decrease to 22% for the years 2033 and 2034.

From now until 2032, homeowners can access federal income tax credits up to $3,200 annually to subsidize the cost of energy-efficient home upgrades by up to 30%.

These credits support 30% of costs, up to $2,000, and can be combined with additional credits up to $1,200 for other qualifying upgrades made within a single tax year.

How to Claim the Federal Tax Credits

Managed by the U.S. Internal Revenue Service (IRS), these credits can be claimed when filing federal income taxes for the year in which the improvements were made.

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Energy Efficiency Home Improvement Credit Details

Homeowners can claim the energy-efficient home improvement credit for upgrading their main home in the U.S. The home must be an existing structure that is renovated or expanded upon, as this credit does not apply to new constructions.

There are no lifetime dollar limits for these credits, allowing homeowners to claim the maximum annual credit each year for qualifying improvements through 2032. However, the credits are nonrefundable, meaning you cannot receive more from the credit than the amount of taxes you owe, nor can you carry forward any excess credit to future tax years.

Residential Clean Energy Credit Details

Investing in renewable energy for your home—such as solar, wind, geothermal, fuel cells, or battery storage technology—can earn you a 30% residential clean energy tax credit on the costs of newly installed qualified property from 2022 to 2032. The credit rate reduces to 26% in 2033 and 22% in 2034.

This credit can be applied to improvements for both new and existing primary homes in the U.S. It is not available for landlords or individuals who do not live in the residence. Some improvements to secondary homes that are part-time residences and not rented out may also qualify, though fuel cell property claims for secondary homes do not apply.

For these renewable energy upgrades, any excess credit can be carried forward to reduce future tax liability. However, interest payments and loan origination fees are not eligible for inclusion.

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