Claiming energy tax credits for 2022 and 2023
Making energy efficient updates to your home is a great move for our environment. But you might feel the pinch in your household budget. The good news is that there are a couple of tax credits that can help out your pocketbook.
But there are some updates to note as what’s covered and even the name of the credits have changed.
In this post, we’ll cover two credits:
- Nonbusiness Energy Property Credit (now the Energy Efficient Home Improvement Credit)
- Residential Energy Efficient Property Credit (now the Residential Clean Energy Credit)
1. Nonbusiness Energy Property Credit (Energy Efficient Home Improvement Credit)
With the Inflation Reduction Act of 2022, the Nonbusiness Energy Property Credit was extended through 2032 and renamed the Energy Efficient Home Improvement Credit.
It’s important to note that the credit will follow different rules depending on the year the property is placed in service.
Property placed in service in tax year 2022
For property placed in service prior to 2023, the Nonbusiness Energy Tax Credit is available for energy efficient home improvements that include building envelope components and energy properties (energy efficient home improvements that increased the heating and cooling efficiency of your primary residence).
Building envelope
Eligible items are:
- Insulation material or systems
- Exterior windows, skylights, or doors
- Storm windows and storm doors installed over certain types of windows and doors
- Certain metal roofs
- Certain asphalt roofs
Energy properties
These are home appliances that improve the home’s heating and cooling efficiency. Improvements include:
- Advanced main air-circulating fan used in a natural gas, propane, or oil furnace
- Biomass fuel stoves
- Central air conditioners
- Electric heat pump water heaters
- Electric heat pumps
- Natural gas, propane, or oil furnaces
- Natural gas, propane, or oil water boilers
- Natural gas, propane, or oil water heaters
The maximum lifetime credit for all types of property combined is $500 for tax year 2022 and all prior years. No more than $200 can be for exterior windows. The property must be original use property installed in your main home in the United States.
The nonbusiness energy tax credit can be claimed on your 2022 taxes via Form 5695. Also, when you claim the credit, make sure to reference the manufacturer’s certification statements as to whether the purchase qualifies!
2023 to 2032
The new credit increases from 10% to 30%, of qualified energy-efficient improvements and residential property expenses. It also removes the $500-per-person lifetime credit limit; giving you, the taxpayer, a maximum credit limit of $1,200 per year. The limit per qualifying item is generally $600 ($250 per exterior door up to $500 for all exterior doors).
The new provision also made the following changes:
- Roofs no longer qualify, but air sealing insulation does.
- You can claim the credit for not only a primary residence, but also a secondary one.
- Beginning in 2025, you should include the product ID on tax forms to claim the credit. The credit is still claimable on Form 5695.
This energy tax credit is available for energy efficient home improvements that fall into the following categories:
Residential Energy Efficient Property (REEP) Credit (Now Residential Clean Energy Credit)
The same legislation mentioned above changed the Residential Energy Efficient Property (REEP) credit to the Residential Clean Energy Credit in 2022. The rules below apply to property put in service after Dec. 31, 2021, through December 31, 2034.
However, the value of the credit changes depending on when you’ve installed the property.
The credit rates are:
- 26% for property placed in service during 2021
- 30% for property placed in service from 2022-2032
- 26% for property placed in service during 2033
- 22% for property placed in service during 2034
What property qualifies?
Solar electric, wind, and other alternative energy equipment installed in your home qualifies. But, wait… If your home also has solar panels, there are even more credits you could claim. Learn more about claiming solar credits.
More help with claiming tax credits
Don’t go at taxes alone, especially when you have tax credits on the line. Get the support of a tax pro at H&R Block. In fact, with many ways to file your taxes, our pros maximize the tax deductions and credits you are entitled to optimize your tax outcome.
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