Making your home more energy efficient can be a little pricey, but tax incentives are here to help. The Inflation Reduction Act created or updated several tax credits or rebates aimed at helping homeowners boost energy efficiency. These tax breaks can help to lessen the burden on those who make upgrades that reduce a household’s energy demand (and therefore its emissions) but that tend to come with high upfront costs.
If you’re like the many Americans who have a lot of stress around tax season, taking advantage of these incentives might seem daunting. But don’t worry—we’ve done the work for you. While you should still consult with a tax pro, here’s a rundown on four residential energy tax incentives, who can tap into them, and how much Uncle Sam is making available.
What’s the difference between a tax credit and a rebate?
Before diving into the incentives, let’s get on the same page about terms.
A tax credit acts like a coupon that you use to reduce the amount of your annual tax bill. This means that not everyone can use it: If you get a refund check, that means you have nothing to apply that coupon, or tax credit, toward. If you owe the government cash, however, it’ll help lower what’s due.
Tapping into rebates, on the other hand, doesn’t require you to have a tax bill. Unlike a tax credit, where you have to wait until tax season to get your money back, a rebate can be deducted from your bill when you’re making your purchase, according to Jennifer Amann, a senior fellow in the buildings program at the American Council for an Energy-Efficient Economy.
Energy Efficient Home Improvement Credit
Even a house running on pure renewable power isn’t that green if all that energy is wasted via things like a poorly insulated roof or single-pane windows. The Energy Efficient Home Improvement Credit helps you improve your home’s overall efficiency in a variety of ways.
How much money is available?
Prior to the Inflation Reduction Act, you could only use this incentive (formerly called the “nonbusiness energy property credit”) as a $500 lifetime credit, meaning you couldn’t repeatedly tap into it. Now, for any projects or purchases made after 2023 and before 2033, you’re able to get an annual credit of 30% of energy efficiency projects you take on in a given year, up to $1,200. If you spent $4,000 total on eligible projects, that means you could take advantage of the full $1,200 credit (assuming your tax bill was more than that amount). For projects like heat pumps, you can potentially get even more money back.
However—and it’s a big however—each category of eligible goods comes with its own specific credit maximums.
What’s covered?
There’s more credit-eligible items and projects than you might think, from audits to biomass boilers. Many covered projects help fortify your “building envelope,” which is essentially anything that serves as a barrier between the outside of your home from the inside. Windows, doors, and roofing materials are among the more-obvious parts of the building envelope, but it also includes the foundation and insulation. The IRS details everything that counts here, but here’s a quick reference:
- Exterior doors are eligible for a credit of up to 30% of the costs up to $250 per door, up to a total of $500. Exterior windows or skylights are eligible for 30% of the project cost up to $600. Any of those items need to meet Energy Star standards to be eligible.
- Materials or systems that air-seal or insulate the home are eligible for up to 30% of total cost (up to the credit’s maximum limit of $1,200 annually). However, they need to meet standards set by the International Energy Conservation Code within at least the last two years. Building envelope materials need to have a lifetime expectancy of at least five years to qualify. An important note: The cost of the materials and systems themselves are what’s eligible for the credit, not the cost of the labor needed to install it.
- A home energy audit, a professional assessment of a home’s inefficiencies, is eligible for up to $150 of the cost, again up to 30% of the total cost. To qualify, you need to use a home energy auditor certified through a federal energy department program or someone who was supervised by someone with that certification. You’ll also need a written report following the inspection, signed off by the auditor.
- Heat pumps, heat pump water heaters, biomass stoves and biomass boilers, as well as other big-ticket items have their own incentives (and limits that extend to $2,000) as well. We dive deeper into the incentives for heat pump products here.
Am I eligible?
Anyone who has a tax bill large enough to utilize the credit is eligible. You need to file form 5695 with your taxes and only apply for the credit for products installed in that same tax year. That means you can’t install windows during the 2024 tax year and then try to take the credit on your 2025 taxes.
What else should I know?
Naturally, there are a few other pieces of fine print to keep in mind:
- Any amount beyond the cap can’t be saved for another year’s tax return. All these projects also have to be occurring at an existing primary home, which means the incentives aren’t valid for, say, improvements to a lake house or a brand-new home.
- There are also some specific requirements for those who work from home.
- The IRS wants you to first subtract the value of any rebates or utility-provided subsidies you receive, although whether you need to deduct state energy efficiency incentives depends on how your state’s program is structured.
Residential Clean Energy Credit
The Residential Clean Energy Credit is now available for folks who want to adopt renewable or clean energy technologies at home, including upgrades for power generation or heating and cooling.
How much is available?
You can apply the Residential Clean Energy Credit to your taxes up to 30% of the cost of new—not used—equipment and installation, so long as it’s installed in a home between 2022 and 2032. After that year, the credit will be reduced to 26% for anything placed into service in 2033 and 22% in 2034. Unlike other incentives, there’s no cap on what that credit can be, so long as it’s matching the percentage for that year, with the exception of fuel cells. In that instance, the credit is worth $500 for every half-kW of capacity, with more specific rules if multiple residents live in the home. That means if a project done in 2025 costs $50,000, you’d be eligible for the 30% credit of $15,000.
What’s covered?
The Residential Clean Energy credit covers basically anything that helps you reduce the emissions from heating, cooling, and powering your home.
You can use it to buy battery storage systems, although any equipment has to have a capacity of at least 3 kWh. Fuel cell infrastructure is also included, but it needs to generate “at least one-half kilowatt of electricity using an electrochemical process and an electricity-only generation efficiency greater than 30%,” according to the IRS. The credit also covers wind turbines that connect to your home.
There are also incentives for solar panels, solar water heaters—which we cover in more detail here—and geothermal heat pump-related incentives, as well.
Am I eligible?
Anyone who has a tax bill large enough to utilize the credit (even over multiple years, in this case) is eligible. You need to file from 5695 with your taxes.
What else should I know?
There are a couple nuances to this program, as well:
- Unlike the other incentives, you can apply any unused credit to a future tax filing. So, if your tax bill was going to be $10,000 for both 2025 and 2026, you could apply $10,000 of the $15,000 on your 2025 bill and save the remaining $5,000 for 2026. However, you can’t factor in any interest paid on related project loans.
- With the exception of fuel cells, the credit can be applied for projects at non-primary residences.
- The IRS requires you to first subtract the value of any rebates or utility-provided subsidies you receive, although whether you need to deduct state energy efficiency incentives depends on how your state’s program is structured.
Alternative Fuel Vehicle Refueling Property Credit
With more than 283 million registered vehicles in America and about a third of U.S. greenhouse gas emissions tied to transportation, it’s not hard to see the importance of reducing their carbon intensity in the face of climate change.1 Enter the alternative fuel vehicle refueling property credit, which is aimed at helping homeowners install the infrastructure they need to power up an EV at home.
What’s covered?
This credit applies to any equipment that helps you charge up an electric vehicle or otherwise “store or dispense clean-burning fuel.” That would include fueling equipment for biodiesel blends of at least 20%, hydrogen and propane, among other types.
How much is available?
For residential installations, the maximum credit you can receive is pretty straightforward. Relevant refueling (that’s “charging”) equipment installed between 2023 and 2032 can get a tax credit of up to 30% of the cost, up to $1,000 per item, although the eligibility year depends on the census tract you live in (we’ll get into that later).
Am I eligible?
This credit has a more complex eligibility standard than other incentives. There’s a sliding scale of how long the credit is available depending on how rural or low-income the community is where the taxpayer lives. Be sure to check the U.S. Department of Energy’s eligibility map for your census tract, as you might be surprised by how you’ve been categorized.
Plus, there are other, more straightforward eligibility criteria: The infrastructure has to be in-service for the tax year you’re looking to use the credit; it can’t be used equipment; and it has to be at your primary residence.
Like the other incentives, anyone who has a tax bill large enough to utilize the credit (even over multiple years, in this case) is eligible. You need to file this form with your taxes.
High-efficiency Electric Home Rebates
This financial incentive works differently than the other federal tax breaks, in that it’s essentially a discount applied at the point of sale, and there are income requirements to qualify. Still, the High-Efficiency Electric Home Rebates share the same goal: decarbonize and improve the efficiency of a home.
What’s covered?
These rebates extend to the purchase and installation of different heat pump technologies (check out heat pump incentives here), electric or induction stoves and cooktops, breaker boxes, electric wiring, and certain weatherization projects like insulation, air sealing and ventilation. But the amount varies by equipment type, according to Rewiring America, an electrification nonprofit.2
- Electric stoves and cooktops are also eligible for up to $840 rebates.
- Breaker box and electric wiring rebates are eligible for up to $4,000 and up to $2,500, respectively.
- Weatherization projects can receive rebates of up to $1,600.
How much is available?
Depending on your income level, you’ll be eligible for either a 100% or 50% rebate of project costs up to $14,000. The amount you’re eligible for will differ depending on whether you’re considered low-income or moderate-income. Essentially, if your household earns less than 80% of your area’s average median income, you’re entitled to a 100% rebate on the costs involved, including installation. For a moderate-income household (defined as making 80% to 150% of the area’s average median income), you’re looking at a 50% rebate, according to Rewriting America. This government site will help you figure out what threshold your household income falls into.
What else should I know?
Unlike with the tax credits, you don’t need to have a sizable tax bill to tap into the rebates. Instead, the High-Efficiency Electric Home Rebates are offered at the point-of-sale—that’s when you’re at the register or signing the sales contract. “That means that money is available … against the cost of the project at the time the project is being done, so you’re not out of pocket on the money to do that project,” says Amann. That’s a benefit for the low- to moderate-income families that these rebates are intended to target.
These credits are not available yet in most places. That’s because state, territory, and tribal governments (plus the District of Columbia) need to apply for the funds from the federal government, and those applications take time to draft, file, and review.
As of this writing, only New York and Minnesota have applied for funds and had their applications approved and made the funds available, according to the U.S. Department of Energy. But other states are making progress; California, Hawaii, Maine, and Washington have had their applications approved, and another 14 states have submitted their filings. Every other jurisdiction eligible to apply is in the process of preparing their application.
State and local incentives
In addition to federal incentives, many utilities, states and localities offer their own pro-renewable energy and electrification incentives. Rewiring America offers an incentive calculator on their website where you can plug in your household income and see the full range of discounts, rebates or tax credits that you’re eligible to receive based on where you live.
- Sources of Greenhouse Gas Emissions, United States Environmental Protection Agency, Jul. 2024 ↩︎
- High-Efficiency Electric Home Rebate Act (HEEHRA), Rewiring America ↩︎