Please note: This blog is for informational purposes only. Home Efficiency Experts is not a financial or tax advisor.
For Long Island homeowners looking to make home performance upgrades in 2023 (and beyond!), we’ve got great news: Thanks to the Inflation Reduction Act of 2022 (IRA), homeowners can save more than ever on energy-efficient heating, cooling, and insulation upgrades. From mini-splits, to heat pumps, to air sealing, and more, the IRA makes these upgrades more affordable.
Many of these savings are available in the form of tax credits. And, if hearing that phrase sent you spiraling back to the days of high school personal finance class (yikes!), no need to panic. Though we aren’t financial experts, we are experts on high efficiency heating and cooling–and have years of expertise helping homeowners like you make the most of available incentives and rebates on HVAC upgrades.
Today, we’re here to share what you need to know about federal tax credits, how they work, and how you can use them to save on clean energy upgrades to your Long Island Home. When you’re ready to start taking advantage of these savings, turn to the trusted local specialists at Home Efficiency Experts to get started.
What Is a Federal Tax Credit and How Does It Work?
Tax credits are incentives offered by both the federal and state governments that reduce the total amount of taxes a person owes, dollar-for-dollar. For instance, if you owe $2,000 in taxes on your return and can claim a tax credit of $500, your net tax liability drops to $1,500.
The government uses tax credits to incentivize and/or make certain things more affordable, such as education, adoption, childcare, and protecting the environment. For this blog post, we’ll be focusing on federal tax credits that are offered specifically for energy efficiency upgrades, such as those reinstated by the Inflation Reduction Act.
What Tax Credits Are Available for Clean Energy Upgrades?
When the Inflation Reduction Act was passed in the summer of 2022, it included $370 billion in funds specifically for programs and initiatives aimed at fighting climate change. One such program it funded was the 25C tax credit: the Energy Efficiency Home Improvement Credit (aka The Nonbusiness Energy Property Tax Credit).
The IRA reinstated this tax credit and increased it from its original 10% to 30% of the total project cost for qualified energy efficiency upgrades. It also replaced the total lifetime cap of $500 with an annual limit of $1,200 (as well as an additional $2,000 annual limit for heat pumps and heat pump water heaters, so $3,200 in total!).
Thanks to the Energy Efficiency Home Improvement Credit, homeowners can save on a wide variety of clean energy HVAC upgrades, including:
- Insulation and air sealing services ($1,200 annual max, not including installation costs)
- Energy-efficient HVAC systems, such as furnaces, boilers, and central AC ($600 max)
- Heat pumps and mini-splits ($2,000 max)
- Heat pump water heaters ($2,000 max) and high efficiency traditional water heaters ($600 max)
Talk about savings! And though 2023 is a great year to get started with these upgrades, the IRA made this credit available until 2032. This means that homeowners can continue to make upgrades to benefit their homes–and the environment–for years to come.
How to Claim the 25C Tax Credit
When it comes to actually claiming this tax credit, we recommend checking in with a dedicated tax expert or financial advisor. However, if you’re more of a DIY-er (or want to learn more about the process yourself), here are a few steps you can take:
- Read about Form 5695, Residential Energy Credits, on the IRS’s website (this is also where you can download it to complete it come tax season).
- Make a plan to stay organized as you make energy efficiency upgrades, as you’ll need to submit all receipts when you claim the 25C tax credit.
- If you have additional questions about which services qualify and/or how much you can save, reach out to Home Efficiency Experts for help!
Ready to Take Advantage of These Incentives? Contact the Specialists at Home Efficiency Experts Today.
With over 18 years of experience helping homeowners across Long Island, Home Efficiency Experts can help you maximize your savings on home performance upgrades. We strive to provide the best possible solutions for air sealing, insulating, cooling, and heating your home, to ensure year-round comfort and efficiency.
In addition, we stay up to date on current rebates and incentive programs, such as tax credits offered through the IRA, and help our homeowners make the most of these savings. Get in touch today, and let us help you make your Suffolk or Nassau County home as comfortable, healthy, and efficient as possible.