Energy Efficient Window Upgrade

[DGA226]

In January 2023, I replaced the windows in my home with energy efficient windows. What do I need to do to ensure I receive the deductions/ credit I am eligible for?

[DoninGA]

You report the cost of the windows on your 2023 tax return as an Energy Efficient Home Improvement
Credit using Form 5695.

Using TurboTax -

To enter Home Energy Credits -

Click on Federal Taxes (Personal using Home and Business)
Click on Deductions and Credit
Click on I'll choose what I work on (if shown)
Under Your Home
On Home Energy Credits, click the start or update button

Or enter energy improvements in the Search box located in the upper right of the program screen. Click on Jump to energy improvements

Go to this IRS website for information on Home Energy Tax Credits - https://www.irs.gov/credits-deductions/home-energy-tax-credits

[Ruth C-L]

If you make qualified energy-efficient improvements to your home after Jan. 1, 2023, you may qualify for a tax credit up to $3,200. You can claim the credit for improvements made through 2032.

Beginning Jan. 1, 2023, the credit equals 30% of certain qualified expenses, including:

• Qualified energy efficiency improvements installed during the year
• Residential energy property expenses
• Home energy audits

There are limits on the allowable annual credit and on the amount of credit for certain types of qualified expenses. The credit is allowed for qualifying property placed in service on or after Jan. 1, 2023, and before Jan. 1, 2033.

The maximum credit you can claim each year is:

• $1,200 for energy property costs and certain energy efficient home improvements, with limits on doors ($250 per door and $500 total), windows ($600) and home energy audits ($150)
• $2,000 per year for qualified heat pumps, biomass stoves or biomass boilers.

Items of note:

1. The credit has no lifetime dollar limit. You can claim the maximum annual credit every year that you make eligible improvements until 2033. 

2. The credit is nonrefundable, so you can't get back more on the credit than you owe in taxes.

3. You can't apply any excess credit to future tax years. 

4. To qualify, home improvements must meet energy efficiency standards. They must be new systems and materials, not used.

To claim the credit, you'll need to file Form 5695, Residential Energy Credits Part II, with your tax return. You must claim the credit for the tax year when the property is installed, not merely purchased.

Ruth C-L, CPA, Attorney

[Opus 17]

For 2023, you report the expenses on form 5695.  You are not required to attach proof, but keep your proof with your records for as long as you own the home and 3 years after you sell.  (In future years, you will be required to enter qualifying product numbers on your tax return but that is not required for 2023.).  The maximum credit is $600.

Be aware that for windows, you can only claim the cost of the window, you can't include installation costs.  Try and get an itemized bill from your contractor as your deduction could get denied by an auditor if you can't prove the cost of the windows.  Also, the windows must meet the "Energy Star most efficient certification requirements" in effect at the time of installation.  You will want to keep proof of this as well.

Lastly, remember that the credit reduces your adjusted cost basis when you sell the home.  For example, if you paid $100,000 for the home and paid $5000 for new windows, you would use a cost basis of $105,000 when determining your capital gains tax. But if you received a $600 credit, that reduces your cost basis accordingly to $104,400.