May 05, 2023 | by ProviderCFO
Are you considering making your home more energy-efficient and interested in potential tax savings? You may be eligible for two personal tax credits: the Energy Efficient Home Improvement Credit and the Residential Clean Energy Property Credit.
The Energy Efficient Home Improvement Credit is designed to promote and support eco-friendly upgrades to your home. This non-refundable tax credit is available for qualifying property improvements made between January 1, 2023, and January 1, 2033.
The tax credit equals 30% of the total amount spent on specific qualified expenditures up to a $1,200 aggregate limit for a given tax year. Qualifying property improvements include:
Some qualifying expenditures are subject to a separate yearly credit limit of $2,000, including:
Keep in mind that it’s possible to combine improvements within the different credit limits, making the maximum yearly energy-efficient home improvement credit you can claim up to $3,200. For example, if you install qualifying windows and a natural gas water heater for a maximum credit of $1,200 and an electric heat pump for a maximum credit of $2,000, you can take advantage of the full $3,200 credit.
Please note that this credit cannot be carried forward, so it is important to take advantage of these savings while they are available.
Taxpayers may also benefit from incorporating clean energy sources into their homes. The non-refundable Residential Clean Energy Property Credit can help reduce your annual tax liability. This 30% tax credit is available for specific qualified expenditures on residential energy-efficient property installed between December 31, 2021, and January 1, 2033.
Eligible residential energy-efficient property includes:
The credit percentage rate phases down to 26% for property placed in service in 2033, 22% for property placed in service in 2034, and no credit is available for property placed in service after December 31, 2034. There is no overall dollar limit for the Residential Clean Energy Property Credit. If you cannot use the entire credit amount in a single tax year, you can carry forward the unused portion of the credit to reduce your tax liability in future tax years.
These credits are designed for your primary residence. While certain improvements made to second homes may qualify, these credits are not available for homes that are not your principal residence. For example, landlords cannot use these credits for improvements to rental properties they do not occupy. However, if you rent a home as your main residence and make eligible improvements, you can claim a tax credit.
If you use the qualified property for business purposes, it may still be eligible for the credit, but with some restrictions. If your business use of the property is 20% or less, you can claim the full credit. If your business use of the property exceeds 20%, you must calculate the credit amount based on the portion of the expenditure related to non-business use.
Please note that the rules for claiming these credits differ depending on the specific credit. For the Energy Efficient Home Improvement Credit, you can only claim the credit for qualifying expenses on an existing home or an addition or renovation of an existing home, not for a newly constructed home.
On the other hand, for the Residential Clean Energy Property Credit, you can claim the credit for qualifying expenses on both existing homes and newly constructed homes. Review the requirements for each credit to determine if your home qualifies.
To ensure you get the most from your residential energy tax credits, consider the following tips:
This article is intended to provide a brief overview of residential energy tax credits and is not a substitute for speaking with one of our expert advisors. If you have questions about these two tax credit opportunities, please contact our office to speak with an advisor.
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