The Bottom Line

Federal incentives are mostly tax credits, and most of these are nonrefundable, meaning you must pay federal taxes in order to take advantage of them.

One exception is the EV tax credit.  You may transfer your tax credit to the dealer at the time of sale for an instant reduction in price, payments or lease of the vehicle – for the maximum allowed amount. We do not know if this credit will survive the Trump Administration.

To optimize the credits, be aware of caps and limits. For example, install heat pumps and heat pump water heaters in different years and do panel upgrades in conjunction with a heat pump install.

Federal Tax Credits

Tax credit numbers come from their location in the U.S. or Internal Revenue Code. For example, 25C.

Use IRS Form 5695 to file for most Federal tax credits. The credit is taken on the cost of the equipment (and often installation) minus any rebates from utilities or other sources (excluding any incentives from the State). Federal Inflation Reduction Act credits are shown in the table below.

Read the fine print. Some IRA tax credits have to be used together, e.g.,  25C electric panel tax credit has to be used in conjunction with another 25 C upgrade (heat pump, heat pump water heater) or 25 D (solar tax credit). Total 25C tax credits across panel upgrades and all weatherization projects are capped at $1,200 per year. Heat pumps and heat pump water heaters are subject to a separate 25C cap of $2,000 per year.  In the case where both 25C and 25D are applicable for a panel upgrade (i.e., if you’re upgrading your panel in conjunction with both a heat pump and rooftop solar), you cannot combine the two credits (Rewiring America).

There are caps and restrictions on the IRA tax credits. For example:
    • Energy Efficiency (25C) tax credit CANNOT be carried forward to future tax years. It has no lifetime dollar limit, but each year until 2033, you may only get a yearly maximum tax credit of up to:
      • $2,000 each year (for 30% of the cost of a qualified heat pump or heat pump water heater); and
      • $1,200 total each year for home envelope improvements [e.g., doors ($250 per door and $500 total), windows and skylights ($600), insulation and qualified home energy audits ($150)].
    • Residential Clean Energy (25D) tax credit for solar, wind and geothermal heat pumps, solar water heater, and battery storage. Credit CAN be carried forward to subsequent tax years. There are no annual or lifetime maximums, however the credit percentage is scheduled to decrease:
      • 2022 to 2032: 30%;
      • 2033: 26%, and
      • 2034: 22%
Inflation Reduction Act (IRA) Federal Tax Credits

Based on US Dept of Energy Home Upgrades

Most tax credits are obtained by ensuring you and your equipment meet IRS requirements, collecting required documents and submitting IRS Form 5695 with your taxes. (IRA Rebates, utility rebates and state tax credits may also available for many of these home upgrades if you qualify).

Annual Max Tax Credit HOME UPGRADE TAX CREDIT AMT NOTES
Home “Envelope” improvements PLUS furnaces, boilers and central air conditioners – a total maximum of $1,200/year
ENERGY AUDIT 30% of the cost paid by the consumer, up to $150
WEATHERIZATION– Insulation and Air Sealing Materials up to 30% of the product cost paid by the consumer. Not renter eligible.
Windows and skylights up to 30% of the cost paid by the consumer, up to $600 per year max for both together. Not renter eligible.
Exterior Doors up to 30% of the cost paid by the consumer, up to $500 per year (up to $250 per door) Not renter eligible.
Air Conditioner 30% of the cost paid by the consumer, up to $600.
HPs +HPWHs + biomass stoves – annual credit maximum of $2,000
HEATING AND COOLING – Air Source Heat Pump 30% up to $2,000/year Ducted and minisplit
Heat Pump Water Heater 30% of the cost paid by the consumer, up to $2,000 per year.
Wood & Pellet Stove 30% of the cost paid by the consumer, up to $2,000 per year.
No annual maximum Heat Pump – Geothermal up to 30% of the cost paid by the consumer.
No annual maximum
RENEWABLE ENERGY AND STORAGE -Solar Panels up to 30% of the cost paid by the consumer.
Small Wind Turbines up to 30% of the cost paid by the consumer.
Battery Storage 30% of the cost paid by the consumer.
CLEAN VEHICLE – EV, Plugin Hybrid Used ($4,000) New $3,750 or $7,500 Income and car requirements
EV Chargers 30% of total cost, up to $1,000 for people living in specific census tracts. IRS Form 8911