[FAQ] Revisions to section 25C ENERGY EFFICIENT HOME IMPROVEMENT CREDIT

[Opus 17]

Revisions to section 25C ENERGY EFFICIENT HOME IMPROVEMENT CREDIT

1. Changes the name of the credit from Nonbusiness Energy Property Credit to Energy Efficient Home Improvement Credit.
2. Extends the existing credit without changes through December 31, 2022. (This is the 10% credit for certain improvements with a $500 lifetime cap.)
3. For property installed after December 31, 2022, the Act changes the credit as follows. 

1. The Energy Efficient Home Improvement Credit is extended through December 31, 2032.
2. Increases the credit to 30% of listed improvements.
3. Removes the $500 lifetime cap and replaces it with a $1200 annual cap.
4. Within the $1200 annual cap, there are separate sub-caps for windows ($600), energy property ($600) and doors ($250 per door or $500 for all doors).
5. Notwithstanding the previous caps, there is a credit of up to $2000 for the installation of an electric or natural gas heat pump water heater, an electric or natural gas heat pump, or a biomass stove or boiler.
6. Removes roofing systems designed to prevent heat gain from the list of eligible building envelope improvements.
7. Adds air sealing to the list of building envelope improvements. 
8. If changes are required to the home's electrical panel service (200 Amps or greater) to enable installation of other qualifying property, the electrical work is eligible for a credit. (In other words, if you need to upgrade your electrical service to install an electric heat pump, or efficient air conditioner, the cost of the electrical upgrade is eligible for the credit.
9. Adds a credit for the cost of a home energy audit, with a maximum credit value of $150, and allows the IRS to require substantiation of the audit in such form as the secretary determines.  
10. Makes technical changes to the energy efficiency standards required to qualify for a credit.
11. Beginning with property installed after December 31, 2024, the taxpayer must include product identification numbers for their energy efficient property on their tax returns.

Note that these changes all take effect after December 31, 2022, except for the extension of the current 10% credit, which is retroactive to December 31, 2021.

Source: 

https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_of_2022.pdf

Pages 338-351

Cross-checked with the most recent version here.

PDF (712KB)

Subject to change because it has not been signed by the President yet. 

[tagteam]

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@Opus 17 wrote:

1. If changes are required to the home's electrical panel service (200 Amps or greater) to enable installation of other qualifying property, the electrical work is eligible for a credit....

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I suppose the answer in the (very) old thread linked to below would be the same.

https://ttlc.intuit.com/community/retirement/discussion/we-upgraded-our-electric-panel-box-in-our-ma...

[Opus 17]

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@tagteam wrote:

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@Opus 17 wrote:

1. If changes are required to the home's electrical panel service (200 Amps or greater) to enable installation of other qualifying property, the electrical work is eligible for a credit....

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I suppose the answer in the (very) old thread linked to below would be the same.

https://ttlc.intuit.com/community/retirement/discussion/we-upgraded-our-electric-panel-box-in-our-ma...

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The new section clearly says (paraphrasing) "electrical improvements that are needed to install another piece of property that qualifies for this [section 25C] credit."   Since a leased system is not eligible for the credit, the electrical upgrade is not eligible either.

Remember that the credit previously and still says "costs needed for on site prep and install are eligible."  Here, I think the explicit inclusion of the electrical credit is both a clarification and a limitation; if the panel service is less than 200A, electrical work doesn't qualify.  

Similarly, the battery credit is annotated as a limitation, not a new credit.  Formerly, batteries might be included as part of a PV system but it isn't clear; now they are definitely covered but only over 3kWh capacity. 

[tagteam]

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@Opus 17 wrote:

The new section clearly says (paraphrasing) "electrical improvements that are needed to install another piece of property that qualifies for this [section 25C] credit."   Since a leased system is not eligible for the credit, the electrical upgrade is not eligible either.

Remember that the credit previously and still says "costs needed for on site prep and install are eligible."  Here, I think the explicit inclusion of the electrical credit is both a clarification and a limitation; if the panel service is less than 200A, electrical work doesn't qualify. 

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I understand. I simply believe the policy is stupid (but that's just my opinion).

[Greenhomeowners414]

Does anyone know if this tax credit is attained from insulation expenditures, is it based on material AND labor cost? The old (and current for the rest of this year) 25c rules were that you counted 10% of the material cost ONLY for insulation. I can't find anywhere if this will be for 30% of material and labor cost next year or JUST material.

Example:

https://www.energystar.gov/about/federal_tax_credits/non_business_energy_property_tax_credits

"Tax credit DOES NOT INCLUDE INSTALLATION FOR THE FOLLOWING PRODUCTS"

[Opus 17]

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@Greenhomeowners414 wrote:

Does anyone know if this tax credit is attained from insulation expenditures, is it based on material AND labor cost? The old (and current for the rest of this year) 25c rules were that you counted 10% of the material cost ONLY for insulation. I can't find anywhere if this will be for 30% of material and labor cost next year or JUST material.

Example:

https://www.energystar.gov/about/federal_tax_credits/non_business_energy_property_tax_credits

"Tax credit DOES NOT INCLUDE INSTALLATION FOR THE FOLLOWING PRODUCTS"

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For insulation, it is the cost of the materials only, labor is not allowed.  That is not changed in the revision that takes effect in 2023.  

[LoadShow]

What IRS form is used when filing to claim the tax credit that is available for equipment installed BEFORE this year December 31, 2022?

[DoninGA]

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@LoadShow wrote:

What IRS form is used when filing to claim the tax credit that is available for equipment installed BEFORE this year December 31, 2022?

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If you made energy savings improvements to your home prior to tax year 2022, you will need to amend the tax return for the year of installation to receive any Residential Energy Credits using IRS Form 5695.