Rising energy bills and a growing focus on sustainability have pushed many homeowners to rethink how their homes are built, powered, and upgraded. Whether it’s swapping old windows for insulated ones or replacing an outdated furnace, energy improvements are no longer just good for the planet; they’re also good for your wallet.
One of the most overlooked incentives in the federal tax code is the Energy Efficient Home Improvement Credit. Designed to encourage homeowners to invest in better energy systems, this credit offers direct tax savings on a wide range of upgrades, from insulation and windows to electrical panels and heat pumps.
If you’re planning home improvements this year, this credit might help you reduce what you owe the IRS or wipe it out altogether. At Renaissance Advisory, we help homeowners understand what qualifies, what doesn’t, and how to plan energy upgrades around long-term tax goals.
What Exactly Is the Energy Efficient Home Improvement Credit?
Simply put, it’s a non-refundable tax credit that allows homeowners to claim back 30% of the cost of eligible home improvements. This includes labor in most cases, which makes it more valuable than earlier programs with tighter rules.
The credit is capped annually (usually around $1,200), but that cap resets every year through 2032. So if you’re spacing out renovations or doing a major overhaul in phases, you could claim the credit multiple times over the next several years.
Even more appealing: the credit applies to existing homes only, meaning those living in older houses stand to benefit the most.
Who Is Eligible to Claim It?
The rules are actually simpler than many expect. You qualify if:
- You own your home (it must be your main home, not a rental)
- The property is in the U.S.
- The upgrades are made to an existing home, not a new build
Renters don’t qualify, and landlords can’t claim the credit on rental units. However, if you’re a homeowner making updates to the home where you live most of the time, you likely qualify.
And there’s no income limit; the credit is open to high-income earners and modest-income homeowners alike.
Which Home Improvements Qualify?
There’s a long list of eligible upgrades. Here are some of the most common:
- Windows & Skylights: ENERGY STAR-rated models can earn you up to $600 per year.
- Exterior Doors: $250 per door, up to $500 total.
- Insulation: Includes spray foam, fiberglass batts, blown-in cellulose, and weather stripping.
- Heat Pumps, Furnaces & AC Units: If they meet high-efficiency standards, you could claim up to $2,000 in credits.
- Electrical Panels: If upgraded to support a qualifying system, you could earn $600 back.
- Energy Audits: You can claim $150 for a professional audit, a great first step if you’re unsure where to start.
Each item has specific efficiency requirements and must be installed in accordance with local building codes. The good news? Manufacturers often label qualifying products clearly, or you can confirm eligibility through ENERGY STAR.
What Documents Should You Keep?
You won’t need to send receipts with your tax return, but you should hold onto:
- Invoices from your contractor or supplier
- Product documentation showing efficiency ratings
- Records showing the date of installation
- A copy of your energy audit (if applicable)
In the event of an audit, these will be key. Renaissance Advisory helps clients organize and store these documents as part of our year-round planning process.
What About Investors or Landlords?
If you own a rental property, this credit isn’t for you. But don’t walk away yet.
Energy upgrades made to rental units may still be eligible for other types of tax relief, especially if you do a cost segregation study. By breaking down a property into its individual components (like HVAC, lighting, or roofing), investors can speed up depreciation and capture tax deductions earlier than normal.
For multifamily and commercial real estate owners, pairing cost segregation with energy-efficient improvements can lead to substantial savings, just not under this specific homeowner credit.
Why Now Might Be the Time to Act
The Energy Efficient Home Improvement Credit isn’t forever. It runs through 2032, but there’s no guarantee it will continue beyond that. And since the credit resets every year, smart homeowners are using this time to plan out upgrades across multiple tax years.
Spacing out work, say, doing insulation this year and windows next year, can allow you to hit the credit maximum each time. And with energy prices still rising, the upgrades pay off on their own even without the tax savings.
That’s what makes this credit unique. It’s not just a break on your taxes, it’s a long-term play on your energy costs, home value, and day-to-day comfort.
Final Thoughts: How Renaissance Advisory Can Help
Navigating tax credits might sound simple in theory. But if you’ve ever read IRS Form 5695, you know it’s easy to miss something. At Renaissance Advisory, we walk clients through:
- What upgrades qualify
- How to document properly
- When to time improvements across tax years
- How to combine credits with other deductions
- When cost segregation or bonus depreciation might be the better move
Whether you’re planning to replace your furnace, install new windows, or tackle a full-scale renovation, we’ll help you understand your options and structure your upgrades around a smarter tax plan.
Take the Next Step
Schedule your 10-minute consultation or request a personal tax credit analysis to see how much the Energy Efficient Home Improvement Credit could save you this year and beyond.
