With heating season here and the close of another year, it’s a crucial time to make decisions about home improvements that can also qualify for 2023 tax credits and rebates. The Internal Revenue Service (IRS) offers valuable incentives to encourage homeowners to make energy-efficient upgrades to their primary residences. We’ve put together a guide to help you understand the basics of tax credits and how to maximize your savings, while embracing cutting-edge technology.
Energy Efficient Home Improvement Credit:
The IRS provides tax credits for certain home improvements that increase energy efficiency, covering a range of upgrades from insulation to energy-efficient HVAC systems.
Homeowners can now claim up to $3,200 per year from Jan. 1, 2023, to Jan. 1, 2033
- $2,000 per year based on qualified investments in heat pumps, biomass stoves, and boilers.
- $1,200 per year for installing high-efficiency air conditioners or furnaces, adding insulation, or replacing windows and doors. If you take advantage of this $1,200 per year it can add up to $12,000 over the 10-year period.
There are tax credit limitations though…
- 30% cap on the purchase and installation of a qualified new unit.
- Only certain ENERGY STAR-certified units are eligible.
- Home energy audits: $150
- Exterior doors: $250 per door and $500 total
- Exterior windows, HVAC units, hot water boilers, etc.: $600
Residential Clean Energy Credit:
This credit provides a percentage-based incentive (30%) of the costs for qualified and installed clean energy systems at your main home, whether you own or rent it. These systems not only reduce dependence on traditional energy sources but also contribute to long-term energy savings.
Which equipment qualifies for the Residential Clean Energy Credit?
Equipment that qualifies for the Residential Clean Energy Tax Credit includes solar, wind, geothermal, and fuel-cell technology (list provided by TurboTax):
- Solar panels, or photovoltaics, for generating electricity
- Solar-powered water heaters for water used inside the home (at least half of the home’s water-heating capacity must be solar and water for swimming pools and hot tubs doesn’t qualify)
- Wind turbines that generate up to 100 kilowatts of electricity for residential use
- Geothermal heat pumps that meet federal Energy Star guidelines
- Fuel cells that rely on a renewable resource (usually hydrogen) to generate power for a home (minimum 0.5 kilowatts of power generation capacity)
- Battery storage technologies
Still thinking that it’s not a big enough incentive to invest in costly upgrades like heat pumps. Well, there’s more!
In addition to tax credits, the Inflation Reduction Act (IRA) included Home Energy Rebate Programs. “The U.S. Department of Energy (DOE) estimates that these rebates will save households up to $1 billion on energy bills each year and support over 50,000 U.S. jobs” from Energy.gov.
Home Energy Rebate Programs:
There are two rebate programs included: Home Efficiency Rebates and Home Electrification and Appliance Rebates. Each state and territory has to apply to participate, so the way these programs are administered and funded varies from state to state. For example, in Michigan the programs will be administered by EGLE’s Energy Services Unit, which is currently going through the process of identifying a consultant for the program. The expectation is that in October 2024 the EGLE will open the program to households.
Under the Home Electrification and Appliance Rebate, heat pumps used for space heating and cooling can get a rebate up to $8,000. Plus, according to Environment America, “If you have an electric furnace or electric baseboard heating, switching to a heat pump can reduce electricity consumption by about 50 percent.” If you qualify for this rebate, then it’s available at the time of purchase, so there’s no waiting for a reimbursement.
Not sure if it’s the right time to invest in energy-efficient upgrades?
You can check with your utility provider on available professional home energy assessments. If you’re in Michigan, then DTE and Consumers Energy both offer assessments with potential rebates or free upgrades. Or, you can do-it-yourself with the Powerley home energy management app. Within the app is Powerley Advisor, which suggests insightful new ways to optimize energy consumption. Alerts make it possible to monitor when there’s a sudden spike in energy, like your HVAC, compared to a sudden increase in your always-on energy use. For many of us, it is this type of guided insight which we have been sorely missing from our homes and have been waiting for.
If you live in Michigan and have DTE as your electricity provider, then you can download the app now!
By combining the Home Energy Tax Credits with specific incentives for HVAC upgrades and insights of your home’s energy use, you can make informed decisions to maximize your savings. Understanding eligibility criteria, keeping thorough documentation, and consulting tax professionals will empower homeowners to create energy-efficient, sustainable homes while enjoying valuable tax savings. Explore the possibilities, make informed decisions, and take meaningful steps toward a more energy-efficient home that incorporates cutting-edge technologies.