Did you make or are you planning to give your home an energy saving upgrade? Then, check out the latest Internal Revenue Service (IRS) rules and qualifications to claim a tax credit for your energy efficient home improvement projects.  

Who May Claim the Energy Efficient Home Improvement Credit 

To claim this credit, the energy efficient improvements must be for your primary residence that is located in the United States. Note that a new home will not qualify for this tax credit, the improvements must be made or added to an existing home. 

Naturally, a landlord or a property owner who does not live in the property are ineligible to claim this credit. 

Tax Credit Savings and Limitations 

For energy efficient home improvements made in 2023 until 2032, taxpayers can claim 30% of the qualified expenses up to $3,200 per year.  

There is no lifetime dollar limit for this tax credit but it has yearly maximum limits for certain type of improvements: 

• $1,200 – For energy property costs, energy efficient home improvements, and energy audits 
• $2,000 – For qualified heat pumps and biomass stoves or boilers. 

Qualified Expenses and Credit Amounts 

On top of the above limits and rules, there are additional limits that apply to specific improvements.  

Energy Efficient Improvements – These are the improvements made to your building envelope that meet the energy efficiency standards with an expected lifespan of at least 5 years. However, the cost of labor incurred to install these improvements does not qualify.  

• Insulation and air sealing materials or systems – Must meet the International Energy Conservation Code (IECC) standards that were in effect two (2) years before the improvement installation.  

• Exterior Doors – Must meet the Energy Star requirements. Has a tax credit limit of up to $250 per door to a total of $500. 

• Exterior Windows and Skylights – Must meet the Energy Star requirements. Has a $600 total limit. 

Home Energy Audits – Taxpayers can claim up to $150 as tax credit when you hire an auditor to assess your home for energy efficiency applications. Beginning 2024, the required written report must be prepared and signed by a certified qualified home energy auditor and must be consistent with the industry’s best practices. The auditor must be able to present an employer’s identification number (EIN) and proof that he was certified by a qualified certification program that is recognized by Department of Energy.  

Residential Energy Property Expenses – Energy properties that meet the Consortium Energy Efficiency (CEE) highest efficiency tier are eligible for tax credit up to $600 per item. This includes new central air conditioners, water heaters, furnaces, and hot water boilers. The costs of electrical components to support these energy properties and the costs of labor to install them also qualify for the tax credit. 

Heat Pumps, Water Heaters, and Biomass Stoves or Boilers – These improvements must have a thermal efficiency rating of at least 75% to qualify for the $2,000 yearly limit. Labor installation costs may also be included in figuring the tax credit. 

Business Use of Home 

If you have a home office or use part of your home for your business, you may still claim the tax credit depending on the business percentage use. 

• Up to 20% Business Use: Full Credit 
• More than 20% Business Use: Partial Credit based on the percentage allocated to non-business use. 

Want to learn more? 

You may want to consult and work with 1099 Accountant – We offer online bookkeeping, online advisory services and online tax and accounting services. We offer reasonable rates. We only work with independent contractors, freelancers, and one-person business. We work with locum tenens from California to New York City and everywhere in between. Yes, even Hawaii! 

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