The federal government is offering homeowners significant savings on energy-efficient upgrades and clean energy installations through December 31, 2025. These programs, expanded under the Inflation Reduction Act, enable families to claim up to $3,200 per year in tax credits, covering up to 30 percent of qualifying expenses.
In addition to home efficiency improvements, such as insulation, windows, and modern HVAC systems, the incentives also cover clean energy projects, including solar panels, geothermal systems, and battery storage. By combining these credits, households can substantially lower project costs while reducing their long-term energy bills.
The credits are overseen by the Internal Revenue Service (IRS) and are claimed using Form 5695 (Residential Energy Credits) when filing annual tax returns. With a firm deadline approaching in just over a year, experts emphasize that now is the time for homeowners to capitalize on these financial opportunities.
Tax season is around the corner, and there are generous incentives for making energy-efficient improvements to your home! Watch our video to learn how you can take advantage of federal tax credits to make key energy-saving upgrades that will save you energy and maximize savings. pic.twitter.com/8L1AEP7GO1
— ENERGY STAR (@ENERGYSTAR) January 13, 2025
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Energy Efficient Home Improvement Credit
The Energy Efficient Home Improvement Credit allows homeowners to offset a portion of the costs of specific projects. It covers 30 percent of qualifying expenses, with annual caps set depending on the type of upgrade. Unlike previous programs that had lifetime limits, this version can be claimed every year until 2025.
Households can claim up to $1,200 annually for improvements such as insulation, windows, doors, furnaces, and central air conditioners. In addition, they can claim up to $2,000 annually for advanced systems, including heat pumps, biomass stoves, and heat pump water heaters. Together, the credits total a maximum of $3,200 in one year if multiple categories are combined.
Annual Credit Breakdown
| Upgrade Category | Maximum Credit | Percentage of Cost Covered |
|---|---|---|
| Heat Pumps, Heat Pump Water Heaters, Biomass Stoves | $2,000 | 30% |
| Insulation, Windows, Doors, Furnaces, Central AC | $1,200 | 30% |
This flexible approach allows homeowners to spread projects over multiple years or complete them all in one year, depending on financial planning and energy needs.
Residential Clean Energy Credit
For larger renewable projects, the Residential Clean Energy Credit provides broad coverage with no fixed dollar cap for most systems. It allows homeowners to claim 30 percent of expenses for solar panels, solar water heaters, geothermal heat pumps, wind energy systems, and standalone battery storage units.
This credit applies to both newly constructed and existing homes, provided installations are completed before the end of 2025. Unlike the efficiency credit, which is capped annually, the clean energy credit scales directly with project costs, making it particularly valuable for homeowners investing in solar or geothermal systems.
Qualifying Renewable Energy Installations
- Solar photovoltaic systems
- Solar water heating systems
- Geothermal heat pumps
- Small wind turbines
- Standalone battery storage
With energy costs continuing to rise, these technologies offer long-term relief, providing both immediate tax benefits and ongoing reductions in utility bills.
Potential Household Savings
The total benefit depends on the mix of improvements completed in a given year. For instance, a homeowner spending $8,000 on a heat pump would normally expect a $2,400 credit, but due to caps, only $2,000 can be claimed. If the same homeowner also spends $4,000 on new windows, they could claim an additional $1,200, reaching the maximum annual savings of $3,200.
Example of Combined Savings
| Type of Upgrade | Project Cost | Credit Percentage | Credit Claimed |
|---|---|---|---|
| Heat Pump Installation | $8,000 | 30% ($2,400) | $2,000 |
| Window Replacement | $4,000 | 30% ($1,200) | $1,200 |
| Total Savings | $12,000 | – | $3,200 |
When combined with state-level programs or utility rebates, the overall cost reduction can be even more significant. Many states offer additional credits for the same projects, meaning homeowners could save thousands more when stacking federal and local incentives.
How to Claim the Credits
To claim these incentives, homeowners must file IRS Form 5695 with their federal income tax return. The form includes sections for both the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit.
Taxpayers should keep all invoices, receipts, and manufacturer certification statements that confirm products meet efficiency requirements. Without proper documentation, claims may be delayed or denied. It is also important to remember that these are nonrefundable credits. They reduce tax liability but do not generate refunds beyond the amount owed. For clean energy credits, any unused amounts may be carried forward to the next tax year.
Importance of Acting Now
The deadline of December 31, 2025, provides a limited opportunity for households to maximize benefits. After this date, the structure of these programs could change or expire altogether. By planning projects strategically, homeowners can spread costs across multiple years, ensuring they reach the annual cap and take full advantage of the credits.
Energy-efficient and clean energy improvements also increase property value, making them not only a tax-saving tool but also a long-term investment. With energy costs rising across the country, these projects can deliver measurable financial relief while helping the nation move toward cleaner energy solutions.
Frequently Asked Questions
Can renters claim these credits?
No, these tax credits are designed for homeowners making improvements to their primary residence. Rental properties do not qualify unless the owner also lives in the home.
Do these credits apply to new homes?
Yes, the Residential Clean Energy Credit applies to both new and existing homes. The Energy Efficient Home Improvement Credit generally applies to existing primary residences.
Can federal credits be combined with state incentives?
Yes, federal tax credits can be combined with state programs, local incentives, and utility rebates. Stacking these benefits can significantly reduce the overall cost of upgrades.
Are the credits refundable?
No, the credits are nonrefundable, meaning they can reduce tax liability but will not generate a refund beyond taxes owed. However, some unused clean energy credits may be carried forward to future tax years.
What is the maximum annual benefit?
Homeowners can claim up to $3,200 annually for combined home efficiency projects. Clean energy projects have no dollar cap, though they are limited to 30 percent of project costs.