In 2023, older homeowners can potentially knock thousands of dollars off their tax bill through tax credits for qualified renovations to make homes more energy efficient. You can find information about how the credit works on the IRS website. Look for the Energy Efficient Home Improvement Credit and the Residential Clean Energy Property Credit. Each can be worth 30% of the costs of certain qualified expenditures. For example:
- Up to $250 per door to replace exterior doors, a total of $500.
- Exterior windows and skylights, up to $600.
- Insulation materials or systems, 30% of costs.
- Residential energy items up to $600 for each of central air conditioners, water heaters, furnaces, and improvements to electric panel boards.
- Heat pumps and water heaters, 30% of costs, including labor.
- Home energy audits, 30% of costs up to $150.
- Rooftop solar panels and battery storage, 30% of costs.
There are certain yearly tax credit maximums, but the IRS has a fact sheet with frequently asked questions about the two tax credits and examples of how they work. Here are some things to keep in mind:
- As with any major purchase or renovation, it’s essential to do careful advance planning and budgeting. That includes educating yourself about what you need to do to qualify for all the tax credits, rebates, and the limits to what you can claim.
- Save yourself time and confusion by reading IRS guidance about tax credits before calling vendors and contractors. YouTube, Facebook, the company selling heat pumps, or the guy with the solar panels are not tax advisors. That job belongs to the IRS and your tax advisor.
- Protect yourself from scams and offers too good to be true. Don’t be rushed into anything. A trustworthy service provider will take the time to visit your home and provide an estimate of the job and costs of any equipment and supplies required. It could mean a better job for both of you.
- Save receipts and canceled checks to claim the tax credits. Set up an Excel or paper bookkeeping spreadsheet and file folders to document each home improvement expenditure you plan to claim for a tax credit. You will need this information at tax time, and you will thank yourself later for doing this now.
Resources:
IRS guidance: https://www.irs.gov/credits-and-deductions-under-the-inflation-reduction-act-of-2022
