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Home Energy Credit

I'm helping to do a family member's taxes and they may be entitled to some Home Energy Tax credits.

 

They moved into a 60 year old home in August 2023 and made significant home improvements, just prior to moving in and during their first few months while residing there.

 

Prior to the end of the year, they entered into a contract to have installed for the first time a new furnace and new central air conditioning. The one contract was for both units.

 

However, in 2023 only the furnace was installed and 2/3 of the total contract was paid before year end.  The central air was installed in January 2024 and the remaining 1/3 contract amount will be paid in 2024.

 

Is the taxpayer entitled to any tax credit in 2023, or because the contract covered the entire HVAC system and final payment will not be made until 2024, is the tax credit deferred until next year when the 2024 tax return is completed?

 

Under my thinking one of 3 tax credit options are possible

1.  a $600 tax credit may be taken in 2023 for the work performed and paid for in 2023

2.  a $600 tax credit may be taken in 2024 for the work performed and paid for in 2024

3.  a $1,200 tax credit may be taken in 2024 under the one signed contract where work was performed in 2023 & 2024 and paid for in 2023 and 2024

 

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1 Reply
AnnetteB6
Employee Tax Expert

Home Energy Credit

According to the IRS instructions for claiming a Residential Energy Credit, the costs are treated as being paid when the original installation of the item is completed.  Since the contract was for both a furnace and HVAC and the installation was completed in 2024, the credit should be claimed on the 2024 tax return.

 

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