The rules for carrying excess credit forward to 2024 vary by credit because of changes in the underlying tax laws. From this IRS FAQ page:
- Under the Energy Efficient Home Improvement Credit: a taxpayer may not carry the credit forward. Thus, if a taxpayer does not have sufficient tax liability to claim all or a portion of the credit in the year in which the related property for which the qualifying expenditure is placed in service, the unused amount of the credit may never be claimed.
- Under the Residential Clean Energy Property Credit: a taxpayer may carry forward the unused amount of the credit to reduce tax liability in future tax years.
Background:
Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA), amended the credits for energy-efficient home improvements under § 25C of the Internal Revenue Code (Code) and residential energy property under § 25D of the Code. These FAQs provide details on the IRA’s changes to these tax credits, information on eligible expenditures, and provides examples of how the credit limitations work.
General Overview of the Energy-Efficient Home Improvement Credit
Through December 31, 2022, the energy-efficient home improvement credit is a $500 lifetime credit. As amended by the IRA, the energy-efficient home improvement credit is increased for years after 2022, with an annual credit of generally up to $1,200. Beginning January 1, 2023, the amount of the credit is equal to 30% of the sum of amounts paid by the taxpayer for certain qualified expenditures, including (1) qualified energy efficiency improvements installed during the year, (2) residential energy property expenditures during the year, and (3) home energy audits during the year. There are limits on the allowable annual credit and on the amount of credit for certain types of qualified expenditures (see Q 1 and 2 below). The credit is allowed for qualifying property placed in service on or after January 1, 2023, and before January 1, 2033.
General Overview of the Residential Clean Energy Property Credit
The residential clean energy property credit is a 30-percent credit for certain qualified expenditures made by a taxpayer for residential energy efficient property. The IRA extended the residential clean energy property credit through 2034, modified the applicable credit percentage rates, and added battery storage technology as an eligible expenditure. The credit applies for property placed in service after December 31, 2021, and before January 1, 2033. The credit percentage rate phases down to 26 percent for property placed in service in 2033, 22 percent for property placed in service in 2034, and no credit is available for property placed in service after December 31, 2034.
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