Last month, we explored the variety of energy-efficiency and solar incentives available to homeowners now and starting in 2023. Today, we’re digging deeper into the income tax credits that cover energy-efficiency improvements and renewable energy systems installed during 2022.
If you made home performance upgrades this year, this post is for you!
Whether you file your own taxes or hire a certified public accountant (CPA), it’s important to know what tax credits are available. A credit for energy efficiency or renewables rewards you for making these home upgrades by reducing the amount of money you’re responsible for paying on your 2022 tax return. Both federal and state governments offer credits.
At this time, states don’t offer much in terms of personal tax credits for energy-efficiency upgrades — credits that reward you for saving energy. When searching the Database of State Incentives for Renewables & Efficiency® (DSIRE®), we only found one for efficient upgrades: New Mexico’s Energy Conservation Products Tax Credit.
There are significantly more options for state-level renewable energy tax credits — credits that reward you for using clean energy like solar. Through another quick search on DSIRE, we found credits available in New York, New Mexico, Iowa, Hawaii, Montana, Utah, Massachusetts, Arizona, Vermont, and South Carolina. (You can search for these through your state’s Department of Revenue website, but it’s typically easier to search a database like DSIRE and then follow the program links provided.)
The Inflation Reduction Act (IRA) amended Section 25C of the federal tax code to extend the otherwise expired Non-Business Energy Property Tax Credits for energy-efficient home upgrades through December 31, 2022.
So, if you made a qualifying upgrade between January 1 and December 31, 2022, you could be eligible to receive anywhere from $50 to $500 in tax credits based on the cost of your new energy-efficient product. Note that you can only claim $500 maximum.
So, what upgrades qualify?
Your home must meet certain criteria.
Your upgrade must be installed and in service during 2022 at your existing, owned principal residence located in the U.S. The credit does not apply to new construction, a secondary residence, a home you rent, or a home someone else rents from you. Your principal home can be a single-family detached house, mobile or manufactured home, condominium, or cooperative apartment.
The tax credit applies to nine types of upgrades, which must meet specific criteria.
To learn if your product model qualifies, check your model’s energy-efficiency ratings against this detailed list of criteria provided by ENERGY STAR®.
Don’t feel overwhelmed by the alphabet soup on the ENERGY STAR page — these acronyms simply represent different ratings that measure energy efficiency for different types of products. Some common ones include:
Water heater efficiency: Uniform Energy Factor (UEF) or thermal efficiency
Gas boilers and furnaces: Annual Fuel Utilization Efficiency (AFUE)
Air-source heat pumps: Heating Seasonal Performance Factor (HSPF), Energy Efficiency Ratio (EER), and/or Seasonal Energy Efficiency Ratio (SEER)
You can find your product model’s energy-efficiency rating in a few different ways.
For most products, the easiest way is to look for the yellow “Energy Guide” label that should be adhered to the product itself. If it’s not easily visible, you can search for your model in the ENERGY STAR product database or on the manufacturer’s website to find its energy-efficiency ratings.
To qualify for the tax credit, a few products require additional documentation, such as the Manufacturer’s Certification Statement. You or your contractor may have received that statement when you bought the product; if not, find it on the manufacturer’s website or request that they send you a copy.
| Product | Tax Credit | Qualifications/Ratings | Documentation |
|---|---|---|---|
| Air source heat pumps - split system (with both indoor and outdoor components) | $300 | HSPF: 8.5 or higher; EER: 12.5 or higher; SEER: 15 or higher | N/A |
| Air source heat pumps - package system (with all components located in a single outdoor unit) | $300 | HSPF: 8 or higher; EER: 12 or higher; SEER: 14 or higher | N/A |
| Central air conditioning - split system (with both indoor and outdoor components) | $300 | EER: 13 or higher; SEER: 16 or higher | Manufacturer’s Certification Statement |
| Central air conditioning - package system (with all components located in a single outdoor unit) | $300 | EER: 12 or higher; SEER: 14 or higher | Manufacturer’s Certification Statement |
| Gas, propane, or oil hot water boiler | $150 | ENERGY STAR-certified; AFUE: 95 or higher | N/A |
| Gas, propane, or oil furnaces and fans | $150 | ENERGY STAR-certified; AFUE: 95 or higher; Home not in southern climate | N/A |
| Advanced main air circulating fan | $50 | Consumes no more than 2% of the furnace’s total energy OR Your new ENERGY STAR-certified gas or oil furnace includes this fan | N/A |
| Gas, oil, or propane water heater | $300 | UEF: 0.82 or higher OR Thermal efficiency of 90% or higher | N/A |
| Electric heat pump water heater | $300 | UEF: 2.2 or higher | N/A |
| Insulation | 10% of product cost, up to $500 (not including installation) | Fiberglass batts, rolls, blow-in, rigid boards, spray foam, or pour-in-place insulation | N/A |
| Air sealing | 10% of product cost, up to $500 (not including installation) | Weather stripping, canned spray foam, caulk, or house wrap | Manufacturer's Certification Statement |
| Roofs (metal and asphalt) | 10% of product cost, up to $500 (not including installation) | Purchased before before June 1, 2022; ENERGY STAR-certified; Metal roofs - pigmented coatings; Asphalt roofs - cooling granules | N/A |
| Windows, doors, and skylights | 10% of the product cost, up to $200 (not including installation) | ENERGY STAR-certified | N/A |
If you installed a renewable energy system like rooftop solar before the IRA’s passage, you might have heard you qualified for a tax credit that covers 26% of your costs. Thanks to the IRA’s updates to Section 25D of the federal tax code, 30% of the cost of any renewable energy you installed during 2022 is now covered.
The credit counts toward:
Residential small wind turbines
Fuel cells
Residential battery storage with a capacity of at least three kilowatt hours
Unlike the efficiency tax credit, you can qualify for this one whether you’ve added renewables to your principal or secondary residence and whether the home already existed or is newly constructed.
Note that the ENERGY STAR renewable energy tax credit webpage has not yet been updated to reflect the changes instituted by the IRA.
Once you determine your eligibility for a federal tax credit, you’ll fill out Form 5695 and attach it to your tax return. (Hint: The contractor who made your upgrade could be a valuable resource in completing it.)
Form 5695 covers renewable energy in Part I and energy efficiency in Part II. But if you take a look, you’ll see that the most recent version of the form currently available online is dated 2021, which means it does not account for the updates from the IRA. Once we enter 2023, the federal government should be releasing more information on the updated tax incentives — including, we expect, an updated Form 5695. Sign up for our newsletter to ensure you don’t miss important updates.
The 2022 federal tax credits are certainly nice to have. But starting January 1, 2023, your future energy-efficiency upgrades will be rewarded with much larger and more impactful tax credits (and rebates, too).
You can read more about those in our Rebates and Tax Credits Guide, and be sure to sign up for updates or keep checking our blog and follow Green Door on Facebook and Instagram for more ways to save on home performance upgrades.
Related Post: Homeowner’s Guide to Energy-Efficiency Rebates and Tax Credits
Pearl and Green Door are here to help you make home improvements that will help you increase home comfort and health, decrease utility bills, and realize a meaningful return on your investment. Get started by signing up for our free Green Door app. There, you can generate a Home Investment Plan with customized home performance recommendations based on your goals, and connect with qualified contractors who are well-versed in renewables, efficiency, and financial incentives like tax credits.
Pearl Certification does not provide tax preparation services and does not guarantee that you qualify for these or other tax credits. Please consult a qualified tax professional.
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