Understanding Tax Credits for Energy-Efficient Home Improvements
As energy costs continue to rise and environmental concerns grow, many homeowners are looking for ways to make their homes more energy-efficient. The good news is that the government offers various tax credits to incentivize these eco-friendly upgrades. At Boulanger CPA, we're here to help you navigate the world of energy-efficient home improvement tax credits and maximize your potential savings.
Making your home more energy-efficient isn't just good for the planet - it can also be great for your wallet. Between lower utility bills and valuable tax credits, green home upgrades can offer significant financial benefits. But understanding which improvements qualify and how to claim the credits can be confusing. That's where we come in to help break it all down.

In this guide, we'll explore the key tax credits available for energy-efficient home improvements, what types of upgrades qualify, how much you can potentially save, and how to claim these credits on your tax return. Whether you're considering new windows, upgraded insulation, solar panels, or other green renovations, we'll help you understand how to make the most of these money-saving opportunities.
What Are Energy-Efficient Home Improvement Tax Credits?
Energy-efficient home improvement tax credits are incentives offered by the federal government to encourage homeowners to make eco-friendly upgrades. Unlike deductions that reduce your taxable income, these credits directly lower your tax bill dollar-for-dollar.
There are two main types of credits available:
- The Energy Efficient Home Improvement Credit
- The Residential Clean Energy Credit
Let's take a closer look at each one:
The Energy Efficient Home Improvement Credit
This credit, formerly known as the Nonbusiness Energy Property Credit, was expanded and extended through 2032 by the Inflation Reduction Act. It allows homeowners to claim up to 30% of the cost of qualifying energy-efficient improvements, with a maximum annual credit of $3,200.

Eligible improvements include:
- Insulation
- Energy-efficient windows and doors
- Heat pumps and heat pump water heaters
- Central air conditioning systems
- Natural gas, propane, or oil water heaters
- Biomass stoves and boilers
For example, let's say you install new energy-efficient windows that cost $5,000. You could potentially claim a credit of $1,500 (30% of $5,000) on your taxes, assuming you haven't reached the annual limit.
The Residential Clean Energy Credit
This credit, previously called the Residential Renewable Energy Tax Credit, offers a 30% credit for installing qualifying renewable energy systems in your home. Unlike the Energy Efficient Home Improvement Credit, there's no dollar limit on this credit.
Eligible systems include:
- Solar panels (photovoltaic systems)
- Solar water heaters
- Wind turbines
- Geothermal heat pumps
- Fuel cells
- Battery storage technology
For instance, if you install a $20,000 solar panel system, you could potentially claim a $6,000 tax credit (30% of $20,000).
How Can Homeowners Benefit?
The benefits of these tax credits are twofold. First, they can significantly offset the upfront costs of energy-efficient improvements. This makes these upgrades more affordable and accessible for many homeowners.
Second, the energy-efficient improvements themselves can lead to substantial savings on utility bills over time. For example, ENERGY STAR certified windows can lower household energy bills by an average of 12 percent nationwide. Combine that with the tax credit, and you're looking at some serious savings.
Let's look at a real-life example:
The Johnsons decided to make their home more energy-efficient. They installed new insulation ($2,000), energy-efficient windows ($6,000), and a heat pump system ($8,000). Their total investment was $16,000.
Under the Energy Efficient Home Improvement Credit, they could potentially claim:
- $600 for insulation (30% of $2,000)
- $1,800 for windows (30% of $6,000)
- $2,000 for the heat pump (maximum allowed for heat pumps)

That's a total tax credit of $4,400, effectively reducing their out-of-pocket cost to $11,600. Plus, they'll enjoy lower energy bills for years to come!
How to Claim Energy-Efficient Tax Credits
Claiming these credits is relatively straightforward, but it's important to keep good records. Here's what you need to do:
- Keep all receipts and manufacturer's certification statements for your energy-efficient purchases and installations.
- Fill out IRS Form 5695, Residential Energy Credits, when you file your taxes.
- Enter the credit amount from Form 5695 on your Form 1040.
Remember, these are nonrefundable credits. This means they can reduce your tax liability to zero, but you won't receive a refund for any excess credit amount.
Important Considerations
While these credits can offer significant savings, there are a few things to keep in mind:
- The improvements must be made to your primary residence in the United States.
- New construction and rentals typically don't qualify.
- The products must meet specific energy-efficiency requirements. Not all ENERGY STAR products qualify, so be sure to check before making a purchase.
- Installation costs are included for some improvements but not others. For example, installation costs are included for heat pumps but not for windows and doors.
Planning Your Energy-Efficient Upgrades
Given the annual limits on some credits, it might make sense to spread out your improvements over a few years. This strategy could help you maximize your tax benefits.

For example, you might install new windows one year, upgrade your insulation the next, and add solar panels in the third year. This approach allows you to take full advantage of the credits each year while gradually improving your home's energy efficiency.
The Bottom Line
Energy-efficient home improvements offer a win-win situation: you can reduce your carbon footprint while also saving money through lower utility bills and valuable tax credits. However, navigating the specifics of these credits can be tricky.
At Boulanger CPA, we're here to help you make the most of these opportunities. We can assist you in understanding which improvements qualify, how to properly document your expenses, and how to correctly claim these credits on your tax return.
Remember, tax laws can change, and everyone's situation is unique. It's always a good idea to consult with a tax professional before making major home improvements or claiming credits on your taxes.

Ready to start saving on your energy bills and your taxes? Give us a call today. We'd be happy to help you develop a strategy to maximize your energy-efficient home improvement tax credits!
Marc Boulanger
Marc views his accounting business as an extension of his family. And while he holds a Bachelor of Arts in Business Administration and Accounting and a Masters of Science in Accounting, he values traveling around the country with his wife of 30 years and 5 kids, Marc learned that communication is the key to effective team work.
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