Energy Rebates and Tax Credits

Solar panels on the roof of a house, with a clear blue sky behind them.

Are you considering making your home more energy-efficient? There are rewards awaiting you beyond just lower utility bills. When you upgrade your home to be more energy-efficient, you can benefit from both energy rebates and tax credits. Let’s dive into how these incentives work and how they can help you save money while reducing your environmental footprint.

DOE Home Energy Rebates Program (From Manufacturers)

The new Department of Energy (DOE) Home Energy Rebates program is designed to encourage energy-saving retrofits and electrification projects. The eligibility criteria will vary from state to state, so it’s essential to verify before buying. As of 4/18/24, New York is the only state that has fully launched its program. Program tracker: https://www.energy.gov/save/rebates

These energy rebates are considered adjustments to the home’s purchase price, and aren’t taxable income. Whether received at the time of purchase or afterward, these rebates reduce the buyer’s cost basis in the property, which may increase the amount of capital gain realized when and if the home is sold. This is only important, however, If the home sale doesn’t meet the capital gains exclusion requirements. If it does meet those requirements, then you won’t be taxed on the gain regardless.

Now that we’ve covered the only rebate program available as of this writing, this article on energy rebates and tax credits will move on to two different types of energy tax credits.

Energy Efficient Home Improvement Tax Credits

The second part of this energy rebates and tax credits article covers another incentive for energy-efficient home improvements: tax credits. These credits allow you to claim up to:
$1,200 for energy property costs and certain energy-efficient home improvements, with limits on doors ($250 per door and $500 total), windows ($600), and home energy audits ($150).
$2,000 per year for qualified heat pumps, biomass stoves, or biomass boilers.

  • There is no lifetime dollar limit. You can claim the maximum annual credit every year that you make eligible improvements until 2033. The credit is nonrefundable, meaning you can’t receive more than you owe in taxes, nor can any unused credit be carried forward to future tax years. To qualify, your home must be your primary residence, cannot be a new home, must be located in the United States, and must not be used solely for business purposes. If you use your home partly for business, the credit is based on the portion of expenses allocable to nonbusiness use. Landlords or property owners who don’t reside in the home are ineligible. If you’re eligible for both DOE rebates and the energy efficiency credits, you must reduce your credit by the rebate amount.

As of this writing, the following energy efficient home improvements are eligible for the Energy Efficient Home Improvement Credit. Check the IRS website for the latest info.

  • Exterior doors, windows, and skylights
  • Insulation materials or systems
  • Air sealing materials or systems
    Home energy audits
  • Central air conditioners
    Natural gas, propane, or oil water heaters
  • Natural gas, propane, or oil furnaces and hot water boilers
  • Improvements to or replacements of panelboards, sub-panelboards, branch circuits, or feeders
  • Heat pumps and biomass stoves and biomass boilers
  • Electric or natural gas heat pump water heaters;
  • Electric or natural gas heat pumps
  • Biomass stoves and biomass boilers

There is a $1,200 yearly tax credit maximum for building envelope components, home energy audits, and energy property, while heat pumps and biomass stoves/boilers have a separate $2,000 yearly credit limit. Therefore, the maximum total annual credit amount is $3,200.

Residential Clean Energy Tax Return Credits

The final section of this article covering energy rebates and tax credits discusses the clean energy tax credits. This credit equals 30% of the costs (excluding interest) of new, qualified property installed from 2022 through 2032. After that, the credit gradually phases down. It is nonrefundable, and can’t exceed the amount you owe in tax. You can, however, carry unused portions forward to future tax years, until it is fully used. There is no annual or lifetime limit except for fuel cells (which is $500 for each half kilowatt of capacity, per resident of the home, up to $1,667). You can claim the credit every year that you install new property until the credit begins to phase out in 2033.

The credit applies to new or existing homes in the U.S. Both homeowners and home renters qualify as long as the improvements are to their main home (the home where you generally live most of the time). You may be able to claim it for certain improvements to a second home in the U.S. that you live in part-time, as long as it isn’t rented to others. must not be used solely for business purposes. If you use your home partly for business, the credit is based on the portion of expenses allocable to nonbusiness use. Landlords or other property owners who don’t live in the home can’t claim the credit. Fuel cell credits aren’t available for second homes or homes located outside the U.S.

Qualified expenses include:
• Solar electric panels
• Solar water heaters
• Wind turbines
• Geothermal heat pumps
• Fuel cells (with the limitations described above)
• Battery storage technology (beginning in 2023)

Qualified expenses are defined as purchase price, labor costs for site preparation, property assembly, and installation. You must subtract public utility subsidies, rebates, and other financial incentives from your qualified expenses.

Conclusion

By leveraging energy rebates and tax credits, you can not only lower your energy bills but also contribute to a more sustainable future. Whether you’re replacing windows or upgrading your heating system, these incentives can make your home improvements even more rewarding.

author avatar
Gwen Harrison President

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