What are residential energy credits?

Individuals who purchase qualified energy efficient improvements for their main home may be allowed nonrefundable tax credits. There are two types of residential energy credits:

• Residential clean energy credit (previously named the residential energy efficient property credit) (Form 5695, Residential Energy Credits, Part I, which is out of scope for the VITA/TCE programs)
• Energy efficient home improvement credit (previously named the nonbusiness energy property credit) (Form 5695, Part II)

What is the energy efficient home improvement credit?

Through December 31, 2022, the energy efficient home improvement credit was a $500 lifetime credit. As amended by the Inflation Reduction Act of 2022, the energy efficient home improvement credit is increased for years after 2022, with an annual credit of generally up to $1,200. Beginning January 1, 2023, the amount of the credit is equal to 30% of the sum of amounts paid by the taxpayer for certain qualified expenditures, including

1. qualified energy efficiency improvements installed during the year,
2. residential energy property expenditures during the year, and
3. home energy audits during the year.

There are limits on the allowable annual credit and on the amount of credit for certain types of qualified expenditures (explained below). The credit is allowed for qualifying property placed in service on or after January 1, 2023, and before January 1, 2033.

Note: There is no lifetime limit for the credit; the limit is determined on a yearly basis. For example, beginning in 2023, a taxpayer can claim the maximum credit allowed every year that eligible improvements are made.

For details on qualified expenditures, Review the Form 5695 Instructions or the FAQs on IRS.gov for more information.FAQs Hyperlink: https://www.irs.gov/pub/taxpros/fs-2022-40.pdf