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

[Opus 17]

Revisions to section 25C ENERGY EFFICIENT HOME IMPROVEMENT CREDIT for 2023 and beyond.

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.

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)

[IanM123]

Hello @Opus 17 great FAQ thanks for contributing! Here is another great resource to go along with your post. This is the IRS fact sheet / FAQ for energy efficient home improvement and the residential clean energy property credits: https://www.irs.gov/pub/taxpros/fs-2022-40.pdf.  

[SpLitBoardEr]

When will Turbo Tax 2023 update to reflect this? I just downloaded desktop 2023 Deluxe and it says max deduction is $500 (OLD 2022 value). Nothing about heat pumps.

[DoninGA]

@SpLitBoardEr The IRS Form 5695 Residential Energy Credits for tax year 2023 has not yet been finalized in TurboTax.

The form is scheduled to be finalized and available in TurboTax on 01/17/2024 (subject to change)

Go to this TurboTax website for forms availability - https://form-status.app.intuit.com/tax-forms-availability/formsavailability?albRedirect=true&product...

[ehshoaf49]

IRS Fact Sheet 2022-40 does not restrict the Energy Efficient Home Improvement Tax Credit for heat pumps to primary homes, only to homes in the United States. Turbo Tax will not let me enter this credit for heat pumps unless it is the primary home. How can I get Turbo Tax to allow this credit based on the IRS Fact Sheet?

[DoninGA]

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@ehshoaf49 wrote:

IRS Fact Sheet 2022-40 does not restrict the Energy Efficient Home Improvement Tax Credit for heat pumps to primary homes, only to homes in the United States. Turbo Tax will not let me enter this credit for heat pumps unless it is the primary home. How can I get Turbo Tax to allow this credit based on the IRS Fact Sheet?

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IRS Form 5695 Residential Energy Credits instructions (2023) page 2 - https://www.irs.gov/pub/irs-dft/i5695--dft.pdf

Qualified energy efficiency improvements. Qualified energy efficiency improvements are the following building envelope components installed on or in your main home that you owned during 2023 located in the United States if the original use of the component begins with you, the component can be expected to remain in use at least 5 years, and the component meets certain energy standards.

Main home. Your main home is generally the home where you live most of the time. A temporary absence due to special circumstances, such as illness, education, business, military service, or vacation, won't change your main home.

[ehshoaf49]

DoninGA, your answer references "the following building envelope components". I am not asking about those but specifically about heat pumps. The IRS fact sheet 2022-40 does not have that restriction for the Energy Efficient Home Improvement Credit regarding heat pumps but states under "Qualifying Residence" that "The credits are available only for certain improvements made to second homes" and further states regarding heat pumps "the home must be located in the United States and used as a residence by the taxpayer". It does not say the home must be a principal residence as it does state for building envelope and energy audit credits. At this point, however, Turbo Tax lets me move forward only if I state the heat pump improvement is for my principal residence. Therefore Turbo Tax is in contrast to the IRS Fact Sheet 2022-40. How can that discrepancy be corrected?

[DoninGA]

Ok, got it - Then based on the information in the 2023 IRS instructions for Residential energy property costs it can be a home in the US that you used.  No reference to a main home.  

Section B—Residential Energy Property Expenditures
Residential energy property costs are costs of new qualified energy property that is installed on or in connection with a home that you used during 2023 located in the United States. 

That is different then what the IRS wrote for tax year 2022 Form 5695 - 

Residential energy property costs. Residential energy property costs are costs of new qualified energy property that is installed on or in connection with your main home that you owned during 2022 located in the United States.

The IRS Form 5695 Residential Energy Credits for tax year 2023 has not yet been finalized.

The form is scheduled to be available in TurboTax on 01/17/2024 (subject to change)

Go to this TurboTax website for forms availability - https://form-status.app.intuit.com/tax-forms-availability/formsavailability?albRedirect=true&product...

[ehshoaf49]

Thanks, I will see after the Turbo Tax update scheduled for January 17 how it looks then.

[SpLitBoardEr]

I was told this form would be updated 1/17/24. The form is still not correct. My credit should be $2000 and it only shows $200. TurboTax did not fill out form 5695 completely. Lines 21 through 30 were left blank.

[VolvoGirl]

The new update date for form 5695 is now Jan 31 (subject to change).  

[MarilynG1]

Latest IRS Forms Availability shows date of 1/31/24.

Here's more info on Form 5695 and IRS Instructions. 

[dmoyer89]

According to the status link, form 5695 has been pushed out again to 2/7/24.  Very disappointing this keeps getting delayed.  I've been excitedly waiting all year for a nice refund based on these credits, and I can't submit my taxes without it being ready.  Makes me want to see if I can file somewhere else faster.

Agency	Form/Schedule	Description	Ready for print?	Ready for E-file?
US	Form 5695	Residential Energy Credits	2024-02-07	2024-02-07

[DoninGA]

@dmoyer89 TurboTax can do nothing about the Form 5695 until the IRS provides updated instructions for tax year 2023.

The instructions are still in draft mode - https://www.irs.gov/pub/irs-dft/i5695--dft.pdf

[dmoyer89]

@DoninGA  Very helpful, thank you. So the delay is on the IRS, not necessarily Turbo Tax.  I will assume that other tax filing programs would have the same delay then, and I'll try to be patient 😅