IRS Releases Section 25C Tax Credit Qualification Requirements for Home Energy Audits

On August 4, 2023, the U.S. Internal Review Service (IRS) announced Notice 2023-59. This notice presents stipulations for U.S. taxpayers to collect the “Energy Efficient Home Improvement Credit” under section 25C of the U.S. tax code for home energy audits.

However, most homeowners are unaware of the 25C tax credit. The tax credit enables people to upgrade their weatherization and HVAC systems in a cost-effective manner. Also, if homeowners install qualifying upgrades in their homes, the government reduces the amount of taxes they owe. Basically, using this method will only reduce your tax liability; you won’t get a tax refund.

How much will the energy-efficient tax credits be? Depending on the type of upgrade being made, the actual amount could be up to $3,200 in a single year, and the credit resets every year! From 2023 onward, the 25C energy efficiency tax credit will allow you to receive up to 30% back on the purchase and installation costs of qualified home upgrades (and other energy efficiency efforts, such as energy audits). However, the credit isn’t unlimited—it’s capped annually at $2,000 for heat pumps and heat pump water heaters and $1,200 for other upgrades. If a heat pump or other energy efficiency upgrades are installed, homeowners could get up to $3,200 back.

There will be a 25C tax credit until 2032, but after that, the credit amount will decrease. If you’re thinking about making some energy-efficient upgrades, this is the decade to do it – and given the rising cost of energy these days, the sooner the better.

Currently, there is a 2022 tax credit, but it’s for a smaller amount with a max of $500. To qualify for this year’s 25C tax credit, you must meet the following criteria:

  • Be a taxpayer living in a home or apartment.
  • Purchase and/or install upgrades 
    • Renters may be able to qualify for upgrades like a window-unit heat pump!
    • Landlord’s are unable to use it for properties you don’t live in—which means you can’t use the credit to upgrade rental properties or Airbnb houses. However, tax credits for certain improvements are eligible for second homes.
  • The house must already exist (it can’t be a new build)
  • The weatherization upgrades must meet certain efficiency guidelines (often denoted by the ENERGY STAR seal of approval)

Essentially, you must own and live in the house and prove that your upgrades make the house more efficient.

To also qualify for the credit, you need to owe some taxes in the foreseeable future because this credit is nonrefundable. If you don’t expect to owe any taxes, you won’t be able to take advantage of this tax credit. 

Read the DOE Press Release here:

Read the IRS Notice here:

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