The Inflation Reduction Act modified federal tax incentives for energy-efficient home improvements including the installation of heat pumps and energy audits. The Act cites tax credit eligibility based on products that meet or exceed the highest efficiency Consortium of Energy Efficiency (CEE)** tier, but do not include any advanced tier.

NOTE: Energy-efficiency standards can be modified and updated over time without additional legislative action.

Section 25C: Energy Efficient Home Improvement Credit (Residential Tax Credit)

The Energy-Efficiency Home Improvement Credit is a long-standing residential federal tax credit for home energy improvements.

• The 10% tax credit and $500 lifetime limit were retroactively extended for January 2022 to Dec. 31, 2022 installs to include highest efficiency tier established by the CEE, as of 1/1/2009. See Amana® brand, Daikin, and Goodman tax credit pages for more information.
• Beginning January 1, 2023 to Dec 31, 2032, the incentive increases to 30% with an annual limit of $1,200 and a $600 per-item limit.
• Special treatment for heat pump products in 25C means the annual qualified heat pump products is up to $2,000 in tax credits.

Modifications to Existing Section 25C (Part 2) – Energy Efficient Improvement Credit

• Any dwelling unit used by the taxpayers (not limited to primary residence) is eligible.
  
• The $500 lifetime limit has been removed and is now a $1,200 annual limit (with the $2,000 exemption), allowing additional claims for retrofits over time.

* This information does not, and should not be considered tax advice. All information is for general purposes only. Contact your tax professional for specific, applicable details.

** Consortium of Energy Efficiency (CEE) - A consortium of efficiency program administrators from the United States and Canada. Members work to unify program approaches across jurisdictions to increase the success of efficiency in markets. The Act cites eligibility based on products that meet or exceed the highest efficiency tier, but do not include any advanced tier.

Section 45L: Residential Tax Credit Paid to Homebuilder of Single-Family and Multi-Family Homes

• Extends the energy-efficient new home credit through December 31, 2032
• Increases credit to $2,500 for new single-family homes that meet certain ENERGY STAR® efficiency standards
• A $5,000 credit would be available for new homes that are certified as zero-energy ready homes. For multifamily buildings eligible to be certified as zero-energy ready, a $5,000 credit per dwelling unit would be available if the laborers and mechanics are paid prevailing wages. Guidance on prevailing wage rules is located here: https://www.govinfo.gov/content/pkg/FR-2022-11-30/pdf/2022-26108.pdf

Multi-Family: If prevailing wage is paid to all laborers and mechanics by contractors and subcontractors:

• $2,500 per dwelling unit eligible to participate in the Energy Star Multifamily New Construction Program. Learn more
• $5,000 per dwelling unit certified as zero-energy ready under the DOE Zero-Energy Ready Home Program. Learn more

* This information does not, and should not be considered tax advice. All information is for general purposes only. Contact our tax professional for specific, applicable details.

** Proper sizing and installation of equipment is critical to achieve optimal performance. Split system air conditioners and heat pumps must be matched with appropriate evaporator coil and air handler components to meet ENERGY STAR criteria. Visit www.energystar.gov for more details.