By Jennifer Ailor, OS Climate Change Committee Chair

     One of the most effective ways for a homeowner to mitigate climate change is through energy efficiency. Efficiency is another form of “fuel” that electric utilities often count because it replaces the coal, gas, oil, etc. that otherwise would have been used to generate electricity for inefficient appliances and equipment.

    Utilities often offer rebates and other incentives for customers to purchase more efficient appliances and equipment. States sometimes offer incentives as well. Finally, the federal government further sweetens the impact of efficiency by offering tax credits.

The Inflation Reduction Act of 2022 modified (for the better) federal residential energy-efficiency tax credits through Dec. 31, 2032.They apply to energy-efficiency improvements in primary residences owned and lived in by the taxpayer (that’s you). The credits apply to all kinds of appliances and equipment, including heating, cooling and water heating equipment.

    Before 2023, the maximum tax credit for all efficiency improvements was $500.  Now, that lifetime limit per taxpayer has been replaced by an annual limit of $1,200. That’s a huge incentive to invest in energy efficiency in your home.

The tax credit is now 30 percent of the cost of an item or improvement. Each item or improvement has a separate tax credit cap, and you cannot claim more than $1,200 in total tax credits per year, except as specified.

Building envelope improvements

    Owners of existing homes may receive a tax credit worth 30 percent of the cost of upgrading the efficiency of the building’s envelope. Installation/labor costs are not included, and the improvement must meet the specified efficiency standards. The following are eligible for the tax credit:

  • Exterior windows and skylights – $600 maximum per year; must meet ENERGY STAR’s most efficient certification requirements
  • Exterior doors – $250 maximum for each door and $500 maximum for all doors per year; must meet applicable ENERGY STAR requirements
  • Insulation materials, air sealing materials or systems designed to reduce a home’s heat loss or gain – $1,200 maximum per year; must meet prescriptive requirements established in the most recent International Energy Conservation Code

Qualified energy property

     Taxpayers who purchase qualified residential energy-efficient property may be eligible for a tax credit. The equipment must meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency that is in effect as of the beginning of the calendar year in which the equipment is placed in service and/or any additional standards specified below. The credit is equal to 30 percent of the cost of the equipment. Heat pumps, heat pump water heaters and biomass stoves have caps that exceed the otherwise $1,200 cap for this credit:

  • Natural gas or electric heat pump water heater – $2,000 maximum credit
  • Electric or natural gas heat pump – $2,000 maximum credit
  • Central air conditioner
  • Natural gas, propane or oil water heater
  • Natural gas, propane or oil furnace or hot water boiler that meets additional requirements
  • Biomass stove with thermal efficiency rating of at least 75 percent used to heat a dwelling or water – $2,000 maximum credit
  • Any improvement to or replacement of panelboard, sub-panelboard, branch circuits or feeders installed in accordance with the National Electric Code, has a load capacity of not less than 200 amps and is installed in conjunction with any qualified energy-efficiency improvement