Included in the Inflation Reduction Act of 2022 are tax credits for taking on home energy improvement projects through 2032. The detail below outlines the Energy Efficient Home Improvement Credit (EEHIC), which can be used to reduce your federal tax liability by up to $3,200 annually, and the Residential Clean Energy Credit (RCEC), which can be utilized to reduce your federal tax liability by up to 30% of the total project cost.1
We welcome questions you have about these tax credits and encourage you to contact your CCM team to discuss how implementing related projects may benefit your tax situation.
Energy Efficient Home Improvement Credit (EEHIC)
The EEHIC will equal 30% of qualified expenses, including energy-efficient improvements installed, residential energy property expenses, and home energy audits. The credit is subject to an annual maximum amount of $1,200, with specific limits on doors ($250 per door; $500 total), windows ($600 total), and home energy audits ($150). Qualified heat pumps, biomass stoves, or biomass boilers will be subject to a separate $2,000 maximum annual credit.
It is important to note that the EEHIC will not have a lifetime cap. The new $1,200 and $2,000 maximum credits can be taken each year in which you qualify. With some planning, you may be able to qualify for credits over multiple years as you complete and budget for energy-related home improvements. The energy credits available prior to 2023 were subject to a $500 lifetime cap, so the new credit is significantly enhanced.
Here are categories of the types of expenses that will qualify for the EEHIC, subject to the maximum annual limits noted previously.
Building Envelope Components
- Exterior doors
- Exterior windows and skylights
- Insulation and air sealing systems
Residential Energy Property
- Central air conditioners
- Natural gas, propane, or oil water heaters
- Natural gas, propane, or oil furnaces and hot water boilers
Heat Pumps, Biomass Stoves, and Biomass Boilers
- Electric or natural gas heat pumps
- Electric or natural gas heat pump water heaters
- Biomass stoves or boilers
Residential Clean Energy Credit (RCEC)
The Residential Clean Energy Credit (RCEC) allows you to take a 30% credit for qualified expenses incurred through 2032 on larger clean energy projects. Notably, the RCEC is not subject to an annual or lifetime maximum. Qualified expenses include:
- Solar, wind, and geothermal power generation
- Solar water heaters
- Fuel cells
- Battery storage
NOTE: The information provided in this article is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.
