THE NEW AND IMPROVED ENERGY EFFICIENT HOME IMPROVEMENT CREDIT

The Inflation Reduction Act of 2022 brought back the credit for energy-efficient purchases for and improvements to a personal residence, which had expired on December 31, 2021, renamed it the Energy Efficient Home Improvement Credit, and enhanced and increased the credit for tax years 2023 through 2032.
 
Based on summaries and analyses of the Act that I have read here is the word on the improved credit.
 
For 2022 returns filed in 2023 the credit remains the same as it was for 2021 returns.  The 10% credit, with a lifetime $500 limit, applies to qualified purchases for –
 
* Heating, Ventilating, and Air Conditioning: advanced main air circulating fan ($50 maximum), air source heat pumps, central air conditioning ($300 maximum), gas, propane, or oil hot water boiler ($150 maximum), and natural gas, propane or oil furnace ($300 maximum),
* Water Heaters: gas, propane or oil water heater, and electric heat pump water heater ($300 max),
* Insulation,
* Roofing (metal and asphalt), and
* Windows and Doors ($200 lifetime limit for windows and skylights)
 
For tax years 2023 through 2032 –
 
* The credit is increased to 30% of eligible costs, which includes the cost of installation.
 
* The annual limit is increased to $1,200 (with some exceptions discussed below).  There is NO lifetime limit.
 
* A credit of up to $150 is allowed for a home energy study or audit.
 
* The annual per item maximum credit limits are:
 
·         $250 for an exterior door ($500 for more than one door),
·         $600 for exterior windows and skylights, central air conditioners, electric panels and related equipment, natural gas, propane, or oil water heaters, and natural gas, propane or oil furnaces or hot water boilers, and
·         $2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and boilers (here the full $2,000 credit is allowed despite the $1,200 annual limit).
 
* A credit can be claimed for qualifying purchases for and improvements to a second personal residence, such as a vacation home.
 
I did read that there may also be rebates available.  More on that in the future when I find more detailed information.
 
From the point of view of the tax preparer perhaps the best change to the credit in the Act is that beginning with 2025 returns it appears the manufacturer of an item that qualifies for the credit by meeting the specific energy star requirements must create a “product identification number” for the item and this number must be entered on the claimant’s tax return in order to get the applicable credit. 
 
In the past taxpayers would merely tell their tax preparer they bought a new furnace or heater and expect the preparer to know by magic that the individual product qualified for the credit.  I told my clients that they must determine if their purchase qualified – I would not do it for them. 
 
FYI, you can find the specific qualifications for individual items for 2022 and beyond here.
 
TTFN