New Energy Efficient Home Improvement Credit Up to $1,200 Available in 2023

In a bid to encourage eco-friendly practices, individuals making energy efficient improvements in their homes starting in 2023 may now reap the benefits of a new energy-efficient home improvement credit up to $1,200. This credit, which replaces the old nonbusiness energy credit, can be a valuable financial incentive for those looking to enhance the energy efficiency of their homes.

The Basics of the Credit

The energy-efficient home improvement credit is a generous offering from the IRS, equating to 30% of the taxpayer’s qualified expenses. These expenses cover installation costs for qualified energy efficiency improvements, qualified residential energy property expenditures, and amounts incurred for home energy audits. However, it’s crucial to note that the credit comes with certain limits, both annually and for specific types of property.

Understanding the Criteria

To qualify for the credit, the property must be in service after December 31, 2022, and before January 1, 2033. The credit applies to existing homes, including additions and renovations, within the United States. Notably, it does not apply to newly constructed homes. Multi-family housing is subject to special rules.

Ownership and Use Tests

The credit’s complexity lies in the differing ownership and use tests for each expense category. Qualified energy efficiency improvements must be installed in a home the taxpayer owns and uses as their principal residence. For residential energy property expenditures, owning the home is not a prerequisite, but it must be used as a residence. Home energy audits require the taxpayer to own or use the home as their principal residence.

Limitations and Caution

The credit is not available for homes not used as residences. Landlords cannot claim the credit for rental properties they do not occupy, but tenants may be eligible for specific expenses related to rented homes. Manufacturer’s written certification is usually relied upon, but in the absence of certification, taxpayers can prove eligibility by demonstrating that the property meets the required standards.

Claiming the Credit

To claim the energy-efficient home improvement credit, taxpayers should use Form 5695, Residential Energy Credits, and attach it to their Form 1040. Retaining the manufacturer’s certification statement is advisable but not mandatory for attachment to the return.

What Improvements are Covered under the New Act

The chart below shows how the new 2023 version of the home energy credit differs from the pre-2023 version and what types of improvements qualify for the new $1,200 credit starting in 2023.

Call Cantrell & Cantrell, Houston’s premier tax law firm for any questions or help implementing tax- efficient strategies, including the new energy credits, at 713-333-0555.