The residential energy credit – for things such as purchases of energy efficient appliances, doors and windows – has changed in a big way for 2023 and beyond. Let’s examine.
Energy efficient home improvement credit
The Way it Used to Be
Up through 2022 (including 2022), the credit was a maximum of $500 – and that was a lifetime limit. So if you bought an energy efficient refrigerator and installed a few energy efficient windows in 2009 and claimed the maximum of $500, you could never claim the credit again.
This presented a compliance problem because one needed to track this. Say you claimed $300 in 2009. There would still be $200 left to potentially claim in the future. Someone needed to track that. Tax pros could usually rely on their software for this tracking, but it still needed to be done.
And then there’s the IRS side – $500 is a small enough amount that it wasn’t likely to get audited, yet this was almost certainly a leaky spot that got abused.
Enter the changes for 2023.
2023 Changes
For 2023, the $500 lifetime limit is gone, replaced with a $1,200 or $2,000 annual limit. This below is straight from the IRS:
Beginning Jan. 1, 2023, the credit equals 30% of certain qualified expenses, including:
- Qualified energy efficiency improvements installed during the year
- Residential energy property expenses
- Home energy audits
- There are limits on the allowable annual credit and on the amount of credit for certain types of qualified expenses. The credit is allowed for qualifying property placed in service on or after Jan. 1, 2023, and before Jan. 1, 2033.
The maximum credit you can claim each year is:
- $1,200 for energy property costs and certain energy efficient home improvements, with limits on doors ($250 per door and $500 total), windows ($600) and home energy audits ($150)
- $2,000 per year for qualified heat pumps, biomass stoves or biomass boilers
- The credit has no lifetime dollar limit. You can claim the maximum annual credit every year that you make eligible improvements until 2033.
From: https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit
Residential Clean Energy Credit
The above section is about the Energy Efficient Home Improvement Credit. There’s a separate credit, called the Residential Clean Energy Credit. This credit is for things such as solar panels, and is 30% of the cost, with no limit. So if you spend $30,000 on solar panels, your credit is $9,000.