Did you make any energy-efficient upgrades to your home in 2023? Or are you planning renovations for 2024? Either way, valuable tax credits available from the IRS can help you save money on qualifying energy improvements.
The tax experts at Pennywise Tax Strategies want to ensure homeowners like you maximize these credits to their advantage. Here's what you need to know:
Who Can Claim the Credits?
Homeowners who improve their primary residence have the most opportunities to benefit from the credits. But renters and owners of second homes used as residences may also qualify for certain expenses. For example, solar panels added to your residence could qualify.
The credits never apply to investment properties or homes you don't personally live in. Additionally, expenses for your commercial office building or rental properties won't qualify for these credits.
Annually, you can utilize either the Energy Efficient Home Improvement Credit or the Residential Clean Energy Credit.
Energy Efficient Home Improvement Credit
Upgrades like new exterior doors, windows, skylights, insulation, central air conditioning, water heaters, furnaces, and energy audits can potentially qualify if all program requirements are met.
For improvements to qualify, building envelope components like doors, windows, and insulation must have an expected lifespan of at least 5 years. Additionally, doors and windows must meet Energy Star efficiency standards, while insulation and sealing must align with International Energy Conservation Code (IECC) criteria.
You can claim 30% of the cost of these qualified improvements made in 2023, up to a $1,200 limit per category. The credit breaks down with specific limits - $250 per exterior door up to $500 total, and $600 total for windows and skylights. More substantial upgrades like electric/gas heat pumps, biomass stoves, and boilers have a higher $2,000 annual limit. Home energy audits also qualify for up to a $150 credit.
The great news is there's no lifetime maximum, so you can claim credits each year you make eligible energy-efficient improvements to your home. The credits phase down slightly in 2033 and 2034 but have no expiration before then. Strategic planning allows you to maximize savings over multiple years.
Residential Clean Energy Credit
Expenses for installing solar panels, wind turbines, geothermal power systems, solar water heating, fuel cells, and battery storage (starting in 2023) may qualify for the residential clean energy property tax credit. To qualify, these clean energy systems must meet the Consortium for Energy Efficiency's highest efficiency tier standards that are in effect when the property is installed.
You can claim 30% of the total costs, including installation labor, for these upgrades in tax years 2023 through 2032. Qualified property in this category includes new central air conditioners, water heaters, furnaces, boilers, and electrical system components over 200 amps. There is an annual limit of $600 per item for these typical energy-efficient home improvements.
More substantial projects like solar panels, geothermal power, and battery storage systems don't have a specific dollar limit. You can claim 30% of the full installation costs. The same $2,000 annual cap that applies to heat pumps and biomass systems would apply to total clean energy expenses.
This generous credit percentage slowly phases down to 26% in 2033 and 22% in 2034 but provides strong savings through the end of 2034. Strategic timing of upgrades over multiple years allows taxpayers to maximize the value of the residential energy property credit.
Get Personalized Guidance
Determining exactly which expenses qualify and how to maximize both credits across multiple tax years can get complex. The tax professionals at Pennywise Tax Strategies can provide personalized guidance to ensure you accurately utilize the tax credits available to you.
Contact us today for a free consultation - we're here to help you keep as much of the profit that you generated as legally possible!
