Credits for Comfort: The New Energy Efficient Home Improvement Tax Credit

For most taxpayers the old Nonbusiness Property Tax Credit was underwhelming. It offered a nonrefundable lifetime maximum of just $500, divided into even smaller maximums for different types of property. With the passing of the IRA this credit has been phased out in favor of the new EEHI tax credit. 

The EEHI tax credit now provides an annual maximum of $3,200 – a significant increase from the previous lifetime maximum of $500. However, this $3,200 is made up of two smaller “buckets”, each with individual caps for the expenditures that fall within them. The credit also remains nonrefundable, cannot be carries forward to future years, and is only available on improvements made to an existing home.

First: the $1,200 Bucket

Expenditures in the first category are eligible for a tax credit of up to 30% of their cost, with a total annual limit of $1,200. This is likely the bucket most taxpayers will use, as it covers many of the common expenses typically associated with this credit:

• Building Envelope Components:
  • Exterior doors: $250 limit per door, $500 limit total. Must be Energy Star certified.
  • Exterior windows & skylights: $600 limit. Must be Energy Star certified.
    • The National Fenestration Ratings Council (NFRC) has a useful tool here to help consumers determine if their doors or windows are Energy Star certified.
  • Insulation: $1,200 limit. Must meet International Energy Conservation Code standards.
• Home Energy Audits: $150 limit. Many utility companies offer these audits, which provide a written report describing the most cost-effective energy improvements for your home. 
• Residential Energy Property:
  • Central air conditioners: $600 limit. 
  • Natural gas, propane, or oil water hears: $600 limit. 
  • Natural gas, propane, or oil furnaces & hot water boilers: $600 limit.
    • Any residential energy property must meet the Consortium for Energy Efficiency’s highest tier in effect at the beginning of that year. The Air-Conditioning, Hearing, and Refrigeration Institute (AHRI) has provided a free directory here to help consumers determine if their property qualifies.

Second: the $2,000 Bucket

Expenditures in this group are also eligible for a tax credit up to 30% of their cost, but with a higher annual limit of $2,000. This group contains more advanced efficiency improvements such as:

• Electric or natural gas heat pumps
• Electric or natural gas heat pump water boilers.
• Biomass stoves and boilers. 

Similar to the residential energy property in the first category, these expenditures must also meet the highest tier set by the Consortium Energy Efficiency to qualify. The AHRI directory also provides guidance for these more advanced improvements.