fbpx

November 29, 2023

The Inflation Reduction Act for Homeowners: A Simple Guide

Inflation Reduction Act incentive for battery installation.

Summary: The Inflation Reduction Act supercharges the financial benefits of adopting modern electric products for homeowners. We will help you navigate the complexity to take full advantage of the incentives available to you.

The Inflation Reduction Act (IRA) has introduced billions in federal incentives for homeowners aiming to make their homes more energy-efficient and environmentally friendly. This comprehensive guide focuses on the two key incentives most relevant for homeowners: the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit. These incentives not only promote sustainable living but also offer financial benefits to homeowners.

Energy Efficient Home Improvement Credit – Energy Efficiency Incentives from the Inflation Reduction Act

Overview

The Energy Efficient Home Improvement Credit in the Inflation Reduction Act provides a substantial incentive for homeowners who make energy-efficient improvements. If you make such improvements to your primary residence after January 1, 2023, you may qualify for a tax credit up to $3,200. This incentive resets annually, allowing claims for successive years’ projects through 2032. The credit covers 30% of certain qualified expenses​​.

Qualified Expenses and Credit Limits

This credit includes various components with specific limits:

Up to $1,200 in Incentives:

  • Building Envelope Components: Includes Energy Star-certified exterior doors (up to $250 per door, $500 total), windows and skylights (up to $600), and insulation and air sealing materials, subject to the overall $1,200 maximum​​. Windows and skylights should have the Energy Star Most Efficient certification. Insulation and air sealing materials or systems need to comply with the IECC standards in effect at the start of the year two years before installation​
  • Home Energy Audits: Qualify for up to $150. The audit must include a written report and inspection, identifying significant and cost-effective energy efficiency improvements​​.
  • Residential Energy Property: Items such as central air conditioners, water heaters, and related electrical components, each capped at $600​​.
  • Up to $2,000 in Incentives:
  • Heat Pumps and Biomass Stoves/Boilers: These improvements, with a thermal efficiency rating of at least 75%, qualify for up to $2,000 annually​​.

Claiming the Credit

The credit is nonrefundable, meaning it cannot exceed your tax liability. It can be claimed annually for eligible improvements until 2033 by filing Form 5695, Residential Energy Credits, with your tax return​​. This opportunity enables homeowners to continuously upgrade their homes for energy efficiency while benefiting financially.

Residential Clean Energy Credit – Solar and Storage Incentives from the Inflation Reduction Act

Overview

The Residential Clean Energy Credit in the Inflation Reduction Act equals 30% of the costs of new qualified clean energy property installed in your home from 2022 through 2032. This offers one of the most attractive incentives for homeowners looking to decrease their energy bill. The credit rate reduces to 26% in 2033 and 22% in 2034​​.

Eligibility

This credit is available for improvements made to your primary or secondary home in the United States, whether owned or rented. Landlords and other non-resident property owners are not eligible​​.

Qualified Expenses

Eligible improvements include:

  • Solar electric panels and solar water heaters.
  • Wind turbines, geothermal heat pumps, fuel cells, and battery storage technology (from 2023 onwards).
  • Labor costs for installation, assembly, and onsite preparation​​.

Limitations and Adjustments

Subsidies, rebates, and financial incentives might need to be subtracted from the qualified property expenses, affecting the credit amount​​. Clean energy property must meet specific standards, such as certification requirements for solar water heaters and capacity criteria for battery storage technology​​.

Claiming the Credit

Similar to the Energy Efficient Home Improvement Credit, this is a nonrefundable credit filed through Form 5695, Residential Energy Credits, for the tax year when the property is installed​​.

Conclusion

The Inflation Reduction Act offers substantial incentives for residential homeowners to invest in energy-efficient and clean energy technologies. Understanding these incentives and how to qualify for them is crucial for maximizing the benefits that electrification products bring to your home. Our energy advisors at Daylight will help you understand the incentives you qualify for. We also offer products that make taking advantage of these incentives simple, such as our ITC pre-buy where we purchase your tax credit upfront in exchange for a significant discount to your equipment cost. 

Scroll to Top