Energy Credit Update-Update 12/23

Who is affected: Anyone that improves the efficiency of certain improvements in their home to save energy

The Inflation Reduction Act (IRA) passed by Congress August 16, 2022 made changes to credits allowed on income tax returns for tax year 2023. After 12/31/2022 the energy efficient home improvement  lifetime credit has been eliminated. As amended by the IRA, the energy efficient home improvement credit is increased for years beginning in 2023, with an annual credit of generally up to $1,200. Beginning January 1, 2023, the amount of the credit is equal to 30% of the sum of amounts paid by the taxpayer for certain qualified expenditures, including (1) qualified energy efficiency improvements installed during the year, (2) residential energy property expenditures during the year, and (3) home energy audits during the year. There are limits on the allowable annual credit and on the amount of credit for certain types of qualified expenditures. The credit is allowed for qualifying property placed in service on or after January 1, 2023, and before January 1, 2033.

The following energy efficient home improvements are eligible for the Energy Efficient Home Improvement Credit:

Building envelope components satisfying the energy efficiency: exterior doors (30% of costs up to $250 per door, up to a total of $500); exterior windows and skylights (30% of costs up to $600); and insulation materials or systems and air sealing materials or systems (30% of costs).

  • Home energy audits (30% of costs up to $150)
    • Residential energy property (30% of costs, including labor, up to $600 for each item) satisfying the energy efficiency requirements: central air conditioners; natural gas, propane, or oil water heaters; natural gas, propane, or oil furnaces and hot water boilers; and improvements to or replacements of panelboards, sub-panelboards, branch circuits, or feeders that are installed along with building envelope components or other energy property.
    • Heat pumps and biomass stoves and biomass boilers (30% of costs, including labor) satisfying the energy efficiency requirements: electric or natural gas heat pump water heaters; electric or natural gas heat pumps; and biomass stoves and biomass boilers.

Certain exclusions and limitations apply.