How Your Home Affects Your Taxes: Energy Credits

Just a few years ago, the Tax Cuts and Jobs Act (TCJA) of 2017 greatly changed existing tax laws that affect homeowners. How your personal tax bill has been affected by the changes in the law depends on your income, where you live, how much you spent (or plan to spend) on a home, and whether you decide to itemize on Form 1040’s Schedule A or take one of the standard deduction amounts.

The Inflation Reduction Act of 2022 has a beneficial financial impact on select energy-saving improvements to your home for the 2023 tax year. The majority of the provisions of that act in regard to energy-saving elements are in effect for the 2023 tax year.

Here are some basic home-related tax facts you should be aware of in light of the changed tax laws. For clarification, forms, and publications, visit the Internal Revenue Service at www.IRS.gov. Be sure to consult your R&A advisor for complete information applicable to your specific situation.

TAX FACTS: On your federal tax return through 2033, you can claim a Residential Clean Energy Credit of 30 percent of the cost of qualified alternative energy equipment installed on your home, including solar hot water heaters and electric panels, battery storage technology, geothermal heat pumps, fuel cells, and wind turbines. The installation must be on an existing or newly constructed home, but not rental property, in the United States. This tax credit has been extended through 2032 through the Inflation Reduction Act of 2022.

HELPFUL HINT: For qualified alternative energy equipment, there is no maximum or lifetime dollar limit on the credit except for fuel cell property. See IRS Form 5695, “Residential Energy Credits,” for more information.

TAX FACTS: Called the Energy Efficient Home Improvement Tax Credit, up to $3,200 in tax credits are available for taxpayers who have installed qualified exterior doors, windows, and skylights; insulation and air sealing materials and systems; central air conditioners; natural gas, propane, or oil water heaters, furnaces, and hot water boilers; heat pumps; water heaters; biomass stoves and boilers; and/or home energy audits on your existing (not new construction) principal residence. This is in effect through 2032 for most items.

HELPFUL HINT: Each year $1,200 can be claimed for certain energy efficient home improvements, with limits on doors ($250 per door and $500 total), windows ($600) and home energy audits ($150). The limit is $2,000 per year for qualified heat pumps and biomass stoves or boilers. There is no lifetime limit.

This is just a summary of complex laws. Your R&A advisor can provide guidance for your specific situation.