by Sam Alford
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Signed into law on August 16th, 2022, the Inflation Reduction Act (IRA) expanded the tax credit for energy efficient heat pumps from $300 up to 30% of the cost with a maximum of $2,000 each year for tax years beginning January, 1st 2023.
Other energy efficient home improvements such as qualified windows, and exterior doors may also be eligible for a credit worth 30% of the cost up to a maximum of $1,200 with certain limitations. Combined with the heat pump credit, taxpayers can save up to $3,200 in tax per year by making qualified energy efficient home improvements.
To qualify for the credit, the heat pump must meet the highest efficiency tier established by the Consortium for Energy Efficiency (CEE). A list of qualifying heat pump models can be found at https://www.ahrinet.org/certification/cee-directory . As mentioned earlier, the maximum amount of the credit eligible to be received from upgrading a heat pump is 30% of the cost up to $2,000 per tax year.
Qualifying energy efficient exterior doors and windows must meet applicable Energy Star guidelines and can be found at https://www.energystar.gov/about/federal_tax_credits/exterior_doors. Doors are limited to 30% of the cost up to $250 per door for a total credit of $500 and windows are limited to 30% of the cost up to $600.
This credit can be very beneficial to those looking to make significant improvements to their homes during 2023. One important piece of information to consider is this credit is only applicable to renovations or additions to existing homes and not new constructions. The credit is also nonrefundable. Additional information can be found at https://www.irs.gov/newsroom/irs-going-green-could-help-taxpayers-qualify-for-expanded-home-energy-tax-credits . We will continue to provide Inflation Reduction Act updates on the various other energy tax credits. Please contact your tax preparer if you have any additional questions.