The Energy Efficient Home Improvement Credit operates with specific credit limits for different types of qualifying expenditures. Here is an illustration of how these credit limits work:
- General Credit Limit:
- The credit is 30% of the qualifying expenditures.
- There is an aggregate yearly credit limit of $1,200 for all building envelope components, home energy audits, and energy property.
- Specific Limits for Different Components:
- Exterior Doors:
- $250 per door.
- $500 total for all exterior doors.
- Windows and Skylights:
- $600 total for all exterior windows and skylights.
- Home Energy Audits:
- $150 total for home energy audits.
- Qualified Energy Property:
- $600 per item of qualified energy property.
- Heat Pumps, Heat Pump Water Heaters, Biomass Stoves, and Biomass Boilers:
- $2,000 total for these items, which is separate from the $1,200 aggregate limit.
- Examples:
- Example 1:
- A taxpayer installs two exterior doors at $1,000 each, windows and skylights at $2,200, and a central air conditioner at $5,000.
- For the doors: 30% of $1,000 is $300, but the limit is $250 per door, so the credit is $500 for both doors.
- For the windows and skylights: 30% of $2,200 is $660, but the limit is $600, so the credit is $600.
- For the central air conditioner: 30% of $5,000 is $1,500, but the limit is $600, so the credit is $600.
- Total potential credit: $1,700, but the aggregate limit of $1,200 applies, so the total credit is $1,200.
- Example 2:
- Same as Example 1, but instead of a central air conditioner, the taxpayer installs an electric heat pump at $5,000.
- For the heat pump: 30% of $5,000 is $1,500, and since it is exempt from the $600 per item and $1,200 aggregate limits, the credit is $1,500.
- Total credit: $2,600 ($500 for doors + $600 for windows and skylights + $1,500 for the heat pump).
- Example 3:
- Same as Example 1, but the heat pump costs $8,000, and the taxpayer spends $600 on home energy audits.
- For the home energy audits: 30% of $600 is $180, but the limit is $150, so the credit is $150.
- Total potential credit for doors, windows, skylights, and audits: $1,250, but the aggregate limit of $1,200 applies, so the total credit is $1,200.
- For the heat pump: 30% of $8,000 is $2,400, but the limit is $2,000, so the credit is $2,000.
- Total credit: $3,200 ($1,200 for doors, windows, skylights, and audits + $2,000 for the heat pump).
- Additional Considerations:
- Labor costs for the installation of residential energy property can be included in the credit calculation.
- The property must be installed in the taxpayer's main home in the United States.
- The components must be expected to remain in use for at least 5 years.
- The credit is nonrefundable and cannot be carried forward to another tax year.
- Used property does not qualify for the credit.
These examples illustrate how the various credit limits of the Energy Efficient Home Improvement Credit operate, ensuring taxpayers understand the specific limits and aggregate caps applicable to their qualifying expenditures.
Sources:
FS-2024-15
Publication 530 (2023)
§ 25C. Energy efficient home improvement credit
Notice 2023-17
Instructions for Form 5695 (2023)
