Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on expiring tax credits for energy-saving upgrades to your home. (Get a free issue of The Kiplinger Tax Letter or subscribe.)
1. When does the tax credit for solar panels expire?
Question: I'm planning to install solar panels in my house. I heard that the “One Big Beautiful Bill” (OBBB) is ending the federal income tax break for this. When does the tax credit expire?
Joy Taylor: The residential clean-energy credit is a nonrefundable income tax credit for people who install an energy system in their home that relies on a renewable energy source, such as solar. Solar panels and solar electric equipment are eligible for the credit, whether they are installed in a primary residence or vacation home. The tax credit is equal to 30% of the cost of equipment and installation, with no maximum dollar limit.
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Under the OBBB, the residential clean-energy credit ends after this year. More specifically, it is repealed for property placed in service after December 31, 2025. Paying for the solar panels before January 1, 2026, is not enough to secure the credit. You will need to pay for them and get them installed by the end of 2025.
2. Can I carry over tax credits?
Question: I installed solar panels in my house earlier this year, and I think the tax credit I am eligible for will be less than the federal income tax that I will owe for 2025, so I plan to carry forward the credit to 2026. Now that the credit is repealed as of Dec. 31, if I don’t use up the full credit amount on my 2025 tax return, can I carry over the excess to next year or do I lose it?
Joy Taylor: The residential clean-energy credit for solar panel installation in your home is not a refundable credit. It can only be used to reduce the amount of income tax owed. If the credit exceeds your tax liability, the IRS won’t refund you the difference. Instead, any unused portion of the tax credit can be carried over to future tax years.
It seems to me that since you paid for and installed the solar panels in your home in 2025, you are entitled to the full tax credit, even if you can’t use the full amount on your 2025 tax return and have to carry forward any unused excess credit to future years. That’s because the credit is repealed for property placed in service after December 31, 2025, and you paid for and completed the installation before this date.
3. Is there a tax credit for a new central air system?
Question: I am thinking about replacing my central air conditioning system in my home with a new, energy-efficient model. Is there a federal income tax credit for this upgrade?
Joy Taylor: Yes, but you must install the new model in your home and pay for it by December 31, 2025 if you want a tax credit.
The energy efficient home improvement credit is for homeowners who install smaller home energy-saving upgrades, such as heat pumps, exterior doors and windows, central air-conditioning systems and boilers. Like the larger residential clean energy credit discussed above, the energy-efficient home improvement credit ends after this year, thanks to the OBBB. More specifically, it is repealed for property placed in service after December 31, 2025. Paying for the new central air conditioning system and installation fee before January 1, 2026, is not enough to secure the credit. You will need to pay for it and get it installed in your home by the end of this year.
The basic credit is 30% of the cost and installation of certain types of insulation, boilers, central air-conditioning systems, water heaters, heat pumps, exterior doors and windows, etc., that you put into your home. These items must also meet certain energy-efficiency requirements, depending on the product. There is a $1,200 general aggregate annual credit limit. But many specific upgrades have lower monetary credit limits and others have higher ones. Here are the item-by-item yearly caps:
- $150 for a home-energy audit
- $500 in aggregate for exterior doors (a maximum of $250 per door)
- $600 for exterior windows or skylights; natural gas, propane or oil water heaters; electric panels; central air conditioners; or natural gas, propane or oil furnaces or boilers
- $2,000 for biomass stoves or biomass boilers; electric or natural gas heat pump water heaters; or electric or natural gas heat pumps
4. How do caps work with multiple energy-saving upgrades?
Question: I know that there are monetary caps for specific items that qualify for the energy efficient home improvement credit. Can you explain how these caps work if you install multiple energy-efficient upgrades in your home at the same time?
Joy Taylor: Here are two examples that illustrate how the various credit limits baked into the energy efficient home improvement credit work. Let’s say that in 2025, you purchase and install in your home two exterior doors at a cost of $1,000 each, windows and skylights at a total cost of $2,200, and a $6,000 central air conditioner. Let’s assume for this purpose that each of these upgrades meet the energy-efficiency requirements for taking the credit. Your 2025 tax credit amount is $1,200. Now, change the facts. In 2025, you purchase and install in your home a natural gas heat pump that costs $7,000, a $4,000 natural gas tankless water heater, and a $6,000 central air conditioner. Again, let’s assume that each of these upgrades meet the energy-efficiency requirements. Your total maximum credit is $3,200 -- $2,000 for the heat pump. $600 for the water heater and $600 for the air conditioner.
About Ask the Editor, Tax Edition
Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.
We have already received many questions from readers on topics related to tax changes in the OBBB and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!
Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.
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