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Monday July 15, 2024

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Home Energy Improvements in 2024

In IR-2024-137 the Internal Revenue Service (IRS) encouraged taxpayers to make updates to their home to qualify for home energy credits. The credits were significantly expanded by the Inflation Reduction Act of 2022.

Most of the credits apply to homeowners, but renters may also be eligible for some credits. The credits are generally in two main categories. There are credits for energy-efficient improvements to your home after January 1, 2023. Other credits apply to improvements such as solar panels, wind turbines or battery storage.

  1. Home Energy Improvements — Qualified home improvements made after January 1, 2023, may produce a 30% credit, with a maximum amount of $3,200. These improvements include qualified doors, efficient windows and skylights. Upgraded insulation and efficient water heaters, furnaces and heat pumps may also qualify. The maximum credit per year is $1,200 for home improvements, with a limit of $250 per door (with a maximum of $500) or $600 for windows. The limit for a heat pump, biomass stove or boiler is $2,000 per year. This credit is not refundable and may not be carried forward to future years.
  2. Clean Energy Credit — A more comprehensive credit is available for energy improvements for your home. These could include solar panels, wind turbines, geothermal, fuel cells or battery storage. The Residential Clean Energy Credit is 30% of new qualified energy property. This usually includes solar panels, panels connected to a solar water heater, wind turbines, geothermal heat pumps, fuel cells or battery storage technology. The water heater must be certified by the Solar Rating Certification Corporation. A geothermal heat pump must meet Energy Star requirements. New batteries must have a capacity of at least 3 kilowatt hours. The clean energy credit has no dollar limit and may be used for eligible items installed in 2023 through 2032. The credit is not refundable, but unused credit amounts may be carried forward to future years.

The IRS emphasizes that it is important to keep good records. For most individuals, the credit will apply to solar panels and battery storage. For the home credit, you may read IRS Publication 5967, Energy Efficient Home Improvements Credit for more information. If you are installing solar panels, battery storage or other energy improvements, you should review Publication 5968, Residential Clean Energy Credit for details.

Editor's Note: In many states, there has been a substantial increase in the cost of electricity each year. Energy efficient improvements to homes become more valuable each year. The cost for solar panels and batteries is often measured through a payback period of years. With reduced electricity and natural gas costs, homeowners also should consider the increased home value with these energy improvements, which may cover most or all the energy improvement costs.

Published May 10, 2024

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