Save More with Tax Credits for Energy-Efficient Home Improvements While You Still Can

If you are planning a few home improvements that will boost the energy efficiency of your house, you might want to call your contractor soon. The GOP’s latest proposal, called the “One Big Beautiful Bill Act,” includes a slew of tax provisions that could cut many "clean energy" tax incentives, including those for energy-efficient home improvements.

The Inflation Reduction Act (IRA), enacted during the Biden administration, was designed to help businesses adopt more eco-friendly measures and jump-start clean energy production. The law included incentives for individuals to "go green" and save some money along the way.

For example, under the IRA, homeowners can cut their tax bills by installing new energy-efficient windows, doors, water heaters, furnaces, air conditioners, etc. There is also an electric vehicle tax credit and a tax break for home EV charging equipment.

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However, the future of the IRA and "green energy" initiatives is uncertain.

The new U.S. House of Representatives GOP tax plan could roll back energy-efficient incentives. And while most clean energy tax provisions in the bill (if approved by Congress and the President) wouldn't be enacted until 2026, some homeowners are rushing to install solar panels before the end of the year, as others wonder whether the EV tax credit is going away.

For now, none of the above tax breaks are gone yet. But if you're eligible, you might want to take advantage of the list below while you still can.

Energy efficient home improvement credit

You may claim up to $3,200 in savings annually under the Energy Efficient Home Improvement Credit. Here are a few fast facts about this tax break:

• The credit is equal to 30% of the costs for all eligible home improvements made during the year.
• The cost of certain biomass stoves and boilers, electric panels, and related equipment, and home energy audits may be covered.
• Roofing and air-circulating fans are not allowed as qualifying items.
• Qualifying home improvements must meet certain updated energy efficiency standards to take advantage of this tax credit.

Additionally, annual limits for specific types of qualifying improvements must be met. If you spread out your qualifying home projects, you may be able to claim the maximum credit each year. Listed below are dollar amounts for a few of the categories:

• $150 for home energy audits.
• $250 for an exterior door ($500 total for all exterior doors).
• $600 for exterior windows and skylights; central air conditioners; electric panels and certain related equipment; natural gas, propane, or oil water heaters; natural gas, propane, or oil furnaces or hot water boilers.
• $2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and boilers (for this one category, the $1,200 annual limit may be exceeded).

But a word of warning: For eligible home improvements beginning in 2025, no credit will be allowed unless the manufacturer of any purchased item creates a product identification number for the item, and the person claiming the credit includes the number on their tax return.

For now, the revised credit is extended through 2032. But the proposed House GOP tax bill would eliminate the credit by December 31, 2025. If the House version of this provision becomes law, homeowners would have about half a year left to plan and complete any energy-efficient home projects to qualify for this credit.

Residential clean energy credit

The second credit homeowners are eyeing is the Residential Clean Energy Credit under the IRA. The credit, which was scheduled to expire last year, is extended through 2034. But like the Energy Efficient Home Improvement Credit, the House GOP is also looking to end the Residential Clean Energy Credit by December 31, 2025.

The IRA effectively boosted the tax break's amount.

Previously, the credit was worth 26% of the cost to install qualifying systems that use solar, wind, geothermal, biomass, or fuel cell power to produce electricity, heat water, or regulate the temperature in your home. (The credit for fuel cell equipment is limited to $500 for each one-half kilowatt of capacity.)

If this portion of the IRA remains, the credit amount will jump to 30% by 2032. The credit will then fall to 26% for 2033 and 22% for 2034, before expiring after 2034.

The IRA also affected the scope of the credit. It no longer applies to biomass furnaces and water heaters, but does apply to battery storage technology with a capacity of at least three-kilowatt hours.

Alternative fuel refueling property credit

The EV tax credit may be one of the more popular individual tax breaks in the IRA. However, a related tax credit that may interest certain homeowners is the Alternative Fuel Refueling Property Credit (also known as the EV charger tax credit).

For homeowners, the credit is worth 30% of the costs of "qualified alternative fuel vehicle refueling property" installed in the home, up to $1,000. (This includes equipment used to recharge an electric vehicle.)

The credit also applies to the purchase of "bidirectional" charging equipment, which can charge the battery of an electric vehicle and allow you to discharge electricity from the battery back out to the electric grid.

This tax break is currently in place through 2032, but the House GOP tax bill is calling for its elimination by December 31, 2025.

Note: The credit also applies to equipment used to store or dispense an alternative fuel (other than electricity) for motor vehicles.

High-efficiency electric home rebates

Although not a tax credit, the High-Efficiency Electric Home Rebate Program was also designed to help American families "go green" under the IRA.

The program provides rebates to low- and middle-income families who purchase energy-efficient electric appliances. To qualify for a rebate, your family's total annual income must be less than 150% of the median income where you live.

Qualifying homeowners may get rebates as high as:

• $840 for a stove, cooktop, range, oven, or heat pump clothes dryer;
• $1,750 for a heat pump water heater; and
• $8,000 for a heat pump for space heating or cooling.

Rebates for non-appliance upgrades may be available up to the following amounts:

• $1,600 for insulation, air sealing, and ventilation;
• $2,500 for electric wiring; and
• $4,000 for an electric load service center upgrade.

There are limits on the amount certain families can receive. For instance, a rebate cannot exceed 50% of the cost of a qualified electrification project if the family's annual income is between 80% and 150% of the area's median income. Each qualifying family is limited to no more than $14,000 in total rebates under the program.

Under the Biden administration, $4.5 billion was scheduled to be allocated as rebates through state and tribal governments that establish their own qualifying programs. These funds are to be available through September 30, 2031, and so far, the GOP has not tried to eliminate this program.

However, Energy Star, a government program designed to sponsor clean energy consumption, faces the threat of shutdown under the Trump administration. Products with the Energy Star designation are often used to determine whether a home improvement qualifies for a rebate or tax credit.

Yet it's important to note that proposals to slash clean energy tax credits have received pushback from some Senate Republicans. And the GOP's latest "One, Bill, Beautiful Bill Act" will likely face revisions in the Senate before any legislation may progress.

Future policies in President Trump's second term may affect other facets of the IRA and how it works. Be sure to keep informed and stay tuned.

Read More

• Homeowners Rush to Install Solar Panels Before Trump Cuts Tax Credits
• Is the EV Tax Credit Going Away?
• Tax Credits in the Inflation Reduction Act