Home energy tax credits​

The Inflation Reduction Act, signed into law by President Biden in August 2022, expanded the amounts and types of expenses that qualify for home energy tax credits that homeowners can claim. These tax credits are part of the law’s historic investment in tackling climate change by reducing energy costs in American homes.  They position America’s Main Street small businesses—door and window installers, plumbers, electricians, general contractors, Heating and Air businesses—at the forefront of this investment and present a generational opportunity for small business growth.

There are two key tax credits that your homeowner customers should be aware of: the energy-efficient home improvement credit and the residential clean energy credit. Both credits are claimed through the standard tax filing process. In addition to federal tax credits, home energy-related activities may qualify for state-run energy rebates.

There are two key IRS tax credits that your homeowner customers should be aware of: 

• The Energy Efficient Home Improvement Credit is a tax credit for energy-efficient home improvements.  Homeowners can get up to $3,200 per year.  
• The Residential Clean Energy Credit saves homeowners up to 30% costs of clean energy property.

Both credits are claimed through the standard tax filing process. Home energy-related activities may also qualify for state-run energy rebates.

These expanded tax credits could make home energy projects much more affordable for your customers. They will also save your customers money on their future energy bills. Home repair or construction small businesses can share this information to grow their home efficiency or clean energy installation business. For example, if your business installs a home solar water heater, your customer could be eligible for a 30% tax credit. By telling current and potential customers, you may be able to sell more business. 

Energy Efficient Home Improvement Credit 

Who is eligible

• Homeowners of all income levels who make improvements to their primary home
  • Homes must be in the U.S.
  • Homes must already exist
  • The home should the primary residence of the homeowner
• Exterior doors, exterior windows, skylights, insulation must be installed on/in a taxpayer’s principal residence. 
• Other eligible property may be installed in a residence used by a taxpayer (includes renters).  

Property the homeowner uses solely for business purposes is not eligible. If the homeowner uses the home partly for business, the credit is as follows:

• Business use up to 20%, full credit
• Business use more than 20%, credit based on share of expenses allocable to nonbusiness use

What is eligible

• Homeowners can claim a tax credit up to $2,000 per year (30% of the cost) for:
  • New electric or natural gas heat pumps 
  • Electric or natural gas heat pump water heaters that meet the Consortium for Energy Efficiency (CEE) highest efficiency tier
  • Biomass stoves and boilers with a thermal efficiency rating of at least 75%  
• Homeowners can claim a tax credit up to $1,200 total per year (30% of the cost up to certain limits) for:
  • Individual products/equipment for energy-efficient home improvement upgrades
  • Building envelope components that meet certain ENERGY STAR standards (e.g., exterior doors, exterior windows, skylights)
  • Home energy audits
  • CEE highest efficiency tier (e.g., new central AC, natural gas, propane, or oil water heaters, furnaces, boilers)
• Labor cost eligibility varies.  
• Qualifying property must be placed in service on or after Jan. 1, 2023, and before Jan. 1, 2033

How to claim

• Homeowners file Form 5695, Residential Energy Credits Part II with their standard tax return  
• Credits must be claimed for the tax year when the property is installed, not just purchased  
• Credits are non-refundable  
• Detailed rules and eligibility requirements are available on the IRS website

Residential Clean Energy Credit

Who is eligible

• Homeowners and renters of all income levels can claim this credit for their primary home
• The credit can apply to new or existing homes located in the US. Landlords and other property owners who do not live in the home are ineligible
• Individuals may be able to claim a credit for certain improvements made to a second home located in the United States that they live in part-time and don't rent to others
• Individuals can't claim a credit for fuel cell property for a second home. Homes not located in the United States also don't qualify. Find out more about qualifying residences

What is eligible 

• Homeowners can claim 30% of the product and installation costs of new, qualified clean energy property for their homes. This includes labor and installation. Except for fuel cell property expenditures there is no overall dollar limit for this credit. Eligible property includes: 
• Solar, wind, and geothermal power generation  
• Solar water heaters 
• Fuel cells 
• Battery storage technology (devices that store clean energy for later use)  

How to claim

• Homeowners file Form 5695, Residential Energy Credits with their tax return  
• Credits must be claimed for the tax year when the property is installed, not just purchased  
• Credits are non-refundable 
• Detailed rules and eligibility requirements are available on the IRS website

• Share this information with your customers so that they know about all potential savings.
• Explore working capital financing options through SBA. These can help to finance the upfront costs of these improvements for your customers. 
  • A working capital loan backed by SBA could give your small business the day-to-day cash. In turn, you could give your customers an upfront discount on your services. 
  • You can use your working capital to continue supporting your business. Wait to charge customers for the remaining cost of your services until after they get their tax credit. Visit Lender Match to get started.