Credit For Energy Efficient Home Modifications

Posted by Lee Reams Sr., BSME, EA on

The credit for Energy Efficient Home Modifications has been around since 2006, but with various credit rates, qualifying modifications, lifetime and varying annual credit limits.  All this fluctuating history tends to confuse the current, 2023 through 2032 credit. This white paper provides a brief summary of this credit.

Other Details

  • Nonrefundable
  • Credit offsets AMT
  • No Carryover
  • Taxpayer may rely on manufacturer’s certification

TIP: Spread improvements    over multiple years to maximize credits.

 Qualifying Homes - Credit is only allowed for components installed in or on a dwelling unit located in the United States, and for energy-efficient building envelope components such as insulation and exterior windows and doors, the taxpayer must own and use the home as the heir principal residence. In addition, the energy-efficient property must reasonably be expected to be in use for at least 5 years. 

For home energy audits, the taxpayer must own the home or use it as a principal residence.

To claim a credit for the costs of certain types of water heaters, heat pumps, central air conditioners, furnaces, hot water boilers, stoves, boilers, and electric system improvements and replacements (collectively termed residential energy property), the taxpayer must use the home as a residence, but does not have to own the home or use it as a principal residence.

  • Manufactured Homes – The term “dwelling unit” includes a manufactured home which conforms to Federal Manufactured Home Construction and Safety Standards (part 3280of title 24, Code of Federal Regulations) (Sec 25C(c)(4))
  • Original Use - The original use of such component commences with the taxpayer.

After 2024, for an item to qualify for this credit it must be produced by a qualified manufacturer, and the taxpayer must include the qualified product ID number of the item on the tax return for the tax year the credit is claimed. (Sec. 25C(h)(1), Act Sec. 13301(g)(1)). Omission of a correct product identification number is treated as a mathematical or clerical error.

Installation Costs - for certain items qualified for the Section 25C credit, both installation labor and materials can count towards the credit. Specifically, the credit covers:

  • Residential Energy Property - This includes items such as heat pumps, biomass stoves, and biomass boilers. For these items, the credit is 30% of the costs, including labor, up to $600 for each item, provided they meet the energy efficiency requirements specified.
  • Building Envelope Components - This includes items like insulation, windows, and doors. However, for these components, the cost of installation labor is not included in the credit calculation—only the cost of the materials themselves is eligible.