What are the tax benefits for green home improvements?

As we enter the new year, there are some exciting changes to tax credits for energy-efficient home improvements and clean energy installations that homeowners should be aware of. The non-business energy credit, now known as the energy efficient home improvement credit (IRC section 25C), has been extended through 2032. This means that homeowners can continue to claim the credit on their tax returns for qualifying home improvements that increase energy efficiency.

The credit has been expanded in several ways. For example, it can now be claimed for any taxpayer home, including vacation properties, and not just principal residences. Additionally, the credit has been raised to 30% of qualified expenditures, with a cap of $600 per item for most improvements. This is a significant increase from the former limit of 10%, making it even more financially beneficial for homeowners to invest in energy-efficient upgrades

Another notable change is that the credit may now be claimed each year, whereas previously there was a lifetime cap for the credit. Homeowners can now take advantage of the credit for each qualifying improvement made to their home, potentially resulting in significant savings over time. Additionally, the credit can be claimed for home energy audits up to $150, which can help identify areas where improvements can be made to increase energy efficiency.

It's important to note that the credit no longer applies to roofs and starting in 2025, a taxpayer must obtain a qualified product identification number assigned by the manufacturer. This means that homeowners should carefully research and select products that meet the necessary requirements to qualify for the credit.

In addition to the energy efficient home improvement credit, the residential energy efficient property credit (IRC section 25D) has also undergone some changes. Now called the residential clean energy credit, this credit applies to solar, electric, wind, and other alternative energy equipment installed on a taxpayer's principal residence or other home. The credit rate, which had been set at 26% for 2022, has been increased to 30% through 2032. This makes it an even more attractive option for homeowners looking to invest in clean energy.

Starting in 2023, the credit may also be claimed for qualifying battery storage technology with a capacity of at least 3 kilowatt hours. This expansion of the credit offers even more opportunities for homeowners to take advantage of clean energy technology and save money on their taxes.

Overall, these changes to tax credits for energy-efficient home improvements and clean energy installations offer homeowners significant financial incentives to invest in more sustainable and efficient technology. As a Fee-Only CPA, I encourage homeowners to take advantage of these credits and consider making upgrades to their homes that can reduce their environmental impact and lower their energy bills. Be sure to consult with your tax professional to determine your eligibility for these credits and maximize your potential savings.

Navigating the complex world of taxes can be a challenge for individuals, families, and businesses. But with the help of Fee-Only financial advisers, CPAs and attorneys, you can have expert guidance on preparing your tax returns and maximizing deductions to reduce the taxes you pay.


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