The tax code has included energy credits for making your house more efficient for many years. Starting in 2006, taxpayers could claim credits for making energy-efficient home improvements. However, there was a lifetime cap of $500 and a small credit rate of 10% in any given year. As such, the energy savings improvements were not a primary focus for most taxpayers.
With the new Inflation Reduction Act that was passed this year, the credit has been enhanced. The lifetime cap limit of $500 and 10% eligibility has been removed. Going forward the annual cap is now $1,200 and the credit rate increased to 30%.
The legislation made the changes retroactive to include energy-saving home improvements for 2022 and extends the credit through 2032.
As with the prior law, certain credit limits apply to the various types of energy-saving improvements. Although not a complete list, the following are credit limits that apply to various energy-efficient improvements under the new law:
- $600 for residential energy property expenditures, windows, and skylights
- $250 for any exterior door ($500 total for all exterior doors)
- $300 for residential qualified energy property expenses
- Notwithstanding these limitations, a $2,000 annual limit applies to amounts paid or incurred for specified heat pumps, heat pump water heaters, and biomass stoves and boilers
- The new law adds Air Sealing Insulation as a creditable expense
- However, the new law eliminates treatments of roofs as creditable after 2022
In addition to the items listed above, there’s a $150 credit for having a home energy audit performed. The audit must be conducted and prepared by a home energy auditor that meets the certification or other requirements specified by the IRS.
One thing to keep in mind is that after December 31, 2024, manufacturers are required to provide you with Identification Numbers. The Identification Numbers will be recorded in an IRS database and will notate if the improvement qualifies for the Home Energy Improvement credit.
How Could These Changes Affect You?
With substantial increases in energy bills and the higher credits now available homeowners who make energy-efficient improvements may recoup those costs sooner. Please note that the credits do not carry forward, so if your tax circumstances do not allow full credit, it would be lost in future years.
If you have questions related to how you might benefit from the enhanced and extended tax credit for making energy-saving improvements to your home, please call the experts at Cray Kaiser today at 630-953-4900.