Federal Income Tax Credits and Incentives for Energy Efficiency

Information updated 12/30/2022

The Inflation Reduction Act of 2022 provides federal tax credits and deductions that empower Americans to make homes and buildings more energy-efficient to help reduce energy costs while reducing demand as we transition to cleaner energy sources.

Savings for Homeowners

New federal income tax credits are available through 2032 providing up to $3,200 annually to lower the cost of energy efficient home upgrades by up to 30 percent. Improvements such as installing heat pumps, heat pump water heaters, insulation, doors and windows, as well as electrical panel upgrades, home energy audits and more, are covered by the tax credits and can help families save money on their monthly energy bills for years to come.

In addition to the energy efficiency credits, homeowners can also take advantage of the modified and extended Residential Clean Energy credit, which provides a 30 percent income tax credit for clean energy equipment, such as rooftop solar, wind energy, geothermal heat pumps and battery storage through 2032, stepping down to 22 percent for 2033 and 2034.

To learn more visit Energy Star Website: Tax Credit For Homeowners 

Central Air Conditioners Tax Credit

Central Air Conditioners Tax Credit

Information updated 12/30/2022

This tax credit is effective for products purchased and installed between January 1, 2023, and December 31, 2032.

See tax credits for 2022 and previous years.

 

What products are eligible?

For split systems, ENERGY STAR-certified equipment with SEER2 > 16 is eligible.  All ENERGY STAR-certified packaged systems are eligible.

Note: Under the tax code, eligible equipment must “meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year.”  The eligibility described above is consistent with this requirement.

Annual Limits on Energy-Efficient Home Improvement Tax Credits

In addition to limits on the amount of credit you can claim for any particular equipment installation or home improvement, there are annual aggregate limits.  The overall total limit for an efficiency tax credit in one year is $3,200.  This breaks down to a total limit of $1,200 for any combination of home envelope improvements (windows/doors/skylights, insulation, electrical) plus furnaces, boilers and central air conditioners.  Any combination of heat pumps, heat pump water heaters and biomass stoves/boilers are subject to an annual total limit of $2,000. (Note: ENERGY STAR-certified geothermal heat pumps are eligible for a separate tax credit and not counted against these limits.)

Furnaces (Natural Gas, Oil) Tax Credits

Furnaces (Natural Gas, Oil) Tax Credits

Information updated 12/30/2022

This tax credit is effective for products purchased and installed between January 1, 2023, and December 31, 2032.

See tax credits for 2022 and previous years.

 

What products are eligible?

Gas Furnaces

ENERGY STAR-certified gas furnaces with AFUE > 97% are eligible.

Note: Under the tax code, eligible equipment must “meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year.”  The eligibility described above is consistent with this requirement.

Oil Furnaces

ENERGY STAR-certified oil furnaces that use certain fuels are eligible. The equipment must be rated by the manufacturer for use with fuel blends at least 20 percent of the volume of which consists of biodiesel, renewable diesel, or second-generation biofuel.

 

Annual Limits on Energy-Efficient Home Improvement Tax Credits

In addition to limits on the amount of credit you can claim for any particular equipment installation or home improvement, there are annual aggregate limits.  The overall total limit for an efficiency tax credit in one year is $3,200.  This breaks down to a total limit of $1,200 for any combination of home envelope improvements (windows/doors/skylights, insulation, electrical) plus furnaces, boilers and central air conditioners.  Any combination of heat pumps, heat pump water heaters, and biomass stoves/boilers are subject to an annual total limit of $2,000. (Note: ENERGY STAR-certified geothermal heat pumps are eligible for a separate tax credit and not counted against these limits.)

Air Source Heat Pumps Tax Credit

Air Source Heat Pumps Tax Credit

Information updated 12/30/2022

This tax credit is effective for products purchased and installed between January 1, 2023, and December 31, 2032.

See tax credits for 2022 and previous years.

What Products are Eligible?

For heat pumps, ENERGY STAR offers a general certification and a cold climate certification.  In general, all ducted heat pumps that have earned the ENERGY STAR label are eligible, as well as certified mini-split systems (non-ducted) with SEER2 > 16, EER2 > 12 and HSPF2 > 9.  Among the models that earn the ENERGY STAR Cold Climate designation, ducted systems with EER2 > 10 are eligible, and mini-splits with SEER2 16, EER2 9, and HSPF2 > 9.5 are eligible.

Note: Under the tax code, eligible equipment must “meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year.”  The eligibility described above is consistent with this requirement.

See Definitions.

Annual Limits on Energy Efficient Home Improvement Tax Credits

In addition to limits on the amount of credit you can claim for any particular equipment installation or home improvement, there are annual aggregate limits.  The overall total limit for an efficiency tax credit in one year is $3,200.  This breaks down to a total limit of $1,200 for any combination of home envelope improvements (windows/doors/skylights, insulation, electrical) plus furnaces, boilers and central air conditioners.  Any combination of heat pumps, heat pump water heaters and biomass stoves/boilers are subject to an annual total limit of $2,000. (Note: ENERGY STAR certified geothermal heat pumps are eligible for a separate tax credit and not counted against these limits.)

Heat Pump Water Heaters Tax Credit

Heat Pump Water Heaters Tax Credit

Information updated 12/30/2022

This tax credit is effective for products purchased and installed between January 1, 2023, and December 31, 2032.

See tax credits for 2022 and previous years.

What products are eligible?

Heat pump water heaters that have earned the ENERGY STAR are eligible for this credit.

Note: Under the tax code, eligible equipment must “meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year.”  The eligibility described above is consistent with this requirement.

 

Annual Limits on Energy-Efficient Home Improvement Tax Credits

In addition to limits on the amount of credit you can claim for any particular equipment installation or home improvement, there are annual aggregate limits.  The overall total limit for an efficiency tax credit in one year is $3,200.  This breaks down to a total limit of $1,200 for any combination of home envelope improvements (windows/doors/skylights, insulation, electrical) plus furnaces, boilers and central air conditioners.  Any combination of heat pumps, heat pump water heaters and biomass stoves/boilers are subject to an annual total limit of $2,000. (Note: ENERGY STAR-certified geothermal heat pumps are eligible for a separate tax credit and not counted against these limits.)

Insulation Tax Credit

Insulation Tax Credit

Information updated 12/30/2022

This tax credit is effective for products purchased and installed between January 1, 2023, and December 31, 2032.

See tax credits for 2022 and previous years.

Annual Limits on Energy Efficient Home Improvement Tax Credits

In addition to limits on the amount of credit you can claim for any particular equipment installation or home improvement, there are annual aggregate limits.  The overall total limit for an efficiency tax credit in one year is $3,200.  This breaks down to a total limit of $1,200 for any combination of home envelope improvements (windows/doors/skylights, insulation, electrical) plus furnaces, boilers and central air conditioners.  Any combination of heat pumps, heat pump water heaters and biomass stoves/boilers are subject to an annual total limit of $2,000. (Note: ENERGY STAR certified geothermal heat pumps are eligible for a separate tax credit and not counted against these limits.)

What products are eligible?

Typical bulk insulation products can qualify, such as batts, rolls, blow-in fibers, rigid boards, expanding spray, and pour-in-place.

Products that air seal (reduce air leaks) can also qualify, as long as they come with a Manufacturers Certification Statement, including:

  • Weather stripping
  • Spray foam in a can, designed to air seal
  • Caulk designed to air seal
  • House wrap

Who can use this credit?

Principal Residence Owners

Must be an existing home & your principal residence. New construction and rentals do not apply.

A principal residence is the home where you live most of the time. The home must be in the United States. It can include a house, houseboat, mobile home, cooperative apartment, condominium, and a manufactured home.

How can I maximize my tax credits?

Given the way the annual aggregate limits are structured, it may be prudent to spread your improvements over a few years.   If your heating or cooling system is old, and you are considering a new air source heat pump, it is always wise to optimize your attic insulation first, so you don’t pay for more heating and cooling than you actually need.  Making these upgrades together in one year would allow you a tax credit of up to $1,200 for the insulation and up to $2,000 for the heat pump. Similarly, you could combine a heat pump installation with window/door replacements.  In that scenario, the $2,000 credit for the heat pump could be combined with tax credits up to $600 total for the windows/skylights plus $500 for two or more doors. If you replace your water heater the following year, you would be eligible for another 30% tax credit, up to $2,000 plus up to $600 if you need an electric panel upgrade to accommodate the new water heater.

Electric Panel Upgrade Tax Credit

Electric Panel Upgrade Tax Credit

Information updated 12/30/2022

This tax credit is effective for products purchased and installed between January 1, 2023, and December 31, 2032.

See tax credits for 2022 and previous years.

What Qualifies for this Credit?

Any improvement to, or replacement of, a panelboard, sub-panelboard, branch circuits, or feeders which:

  1. is installed in a manner consistent with the National Electric Code,
  2. has a load capacity of not less than 200 amps,
  3. is installed in conjunction with, and enables the installation and use of:
    • any qualified energy efficiency improvements, or
    • any qualified energy property (heat pump water heater, heat pump, central air conditioner, water heater, furnace or hot water boiler, biomass stove or boiler)

Annual Limits on Energy-Efficient Home Improvement Tax Credits

In addition to limits on the amount of credit you can claim for any particular equipment installation or home improvement, there are annual aggregate limits.  The overall total limit for an efficiency tax credit in one year is $3,200.  This breaks down to a total limit of $1,200 for any combination of home envelope improvements (windows/doors/skylights, insulation, electrical) plus furnaces, boilers and central air conditioners.  Any combination of heat pumps, heat pump water heaters and biomass stoves/boilers are subject to an annual total limit of $2,000. (Note: ENERGY STAR certified geothermal heat pumps are eligible for a separate tax credit and not counted against these limits.)

Home Upgrade Tool Logo

ENERGY STAR Home Upgrade

Electric Panel upgrades
qualify for this tax credit.

Who can use this credit?

Principal Residence Owners

Must be an existing home & your principal residence. New construction and rentals do not apply.

A principal residence is the home where you live most of the time. The home must be in the United States. It can include a house, houseboat, mobile home, cooperative apartment, condominium, and manufactured home.

How can I maximize my tax credits?

Given the way the annual aggregate limits are structured, it may be prudent to spread your improvements over a few years.   If your heating or cooling system is old, and you are considering a new air source heat pump, it is always wise to optimize your attic insulation first, so you don’t pay for more heating and cooling than you actually need.  Making these upgrades together in one year would allow you a tax credit of up to $1,200 for the insulation and up to $2,000 for the heat pump. Similarly, you could combine a heat pump installation with window/door replacements.  In that scenario, the $2,000 credit for the heat pump could be combined with tax credits up to $600 total for the windows/skylights plus $500 for two or more doors. If you replace your water heater the following year, you would be eligible for another 30% tax credit, up to $2,000 plus up to $600 if you need an electric panel upgrade to accommodate the new water heater.

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