Green plants sprout out of money symbolizing the savings available from updated energy tax credits.

Updated Energy Tax Credit Rules: What to Know 

Updated for the 2023 Tax Year 

Energy tax credits are incentives the government provides to encourage individuals and businesses to invest in energy-efficient technologies and practices. The Inflation Reduction Act, previously referred to as the Nonbusiness Energy Property Credit, was passed in August 2022 and updated two tax credits available for energy-efficient home improvement and residential clean energy equipment starting in the 2023 tax year. These credits can significantly reduce tax liabilities, making them valuable for those looking to contribute to both environmental sustainability and financial well-being.  

Recent Changes and Highlights 

Energy Efficient Home Improvement Credit 

Increased Available Credits: One notable update for the Energy Efficient Home Improvement Credit is the increased credit amount available. The prior Nonbusiness Energy Property Credit had a lifetime credit of $500 but starting in the 2023 tax year the Energy Efficient Home Improvement Credit will be worth up to $1,200 a year for qualifying properties between January 1, 2023, through January 1, 2033. 

Annual Limit vs Lifetime Limit: The credit limits will change in the 2023 tax year. Under the Energy Efficient Home Improvement Credit limits will have an annual limit rather than a lifetime limit. Due to this change, you can spread your qualified home improvements over the 10-year life of the credit and receive up to $12,000 back on your taxes compared to the $500 allotted under the Nonbusiness Energy Property Credit. 

Updated Qualifying Items: The Energy Efficient Home Improvement Credit includes new items with new credit limits. The home improvement items and limits are as follows. 

  • Home energy audits: $150 limit 
  • Exterior doors: $250 per door limit (up to $500) 
  • Exterior windows and skylights, central AC units, electric panels and related equipment, natural gas, propane and oil water heaters, furnaces or hot water boilers: $600 limit 

Residential Clean Energy Credit 

Updated Credit Percentages: The Residential Clean Energy Credit is the second credit extension and expansion of the 2022 Inflation Reduction Act. The credit is worth up to 30% of qualified expenses for residential energy efficient improvements from January 1, 2023, to January 1, 2033.  

Updated Qualified Equipment: The updated qualified equipment are as follows. 

  • Solar panels or photovoltaics 
  • Solar-powered water heaters for water used inside the home 
  • Wind turbines that generate up to 100 kilowatts for residential use 
  • Geothermal heat pumps that meet federal Energy Star guidelines 
  • Fuel cells that rely on renewable resource for generating residential power 
  • Battery storage technologies 

How These Changes Impact You 

For individuals and businesses considering investments in energy-efficient technologies, these updated credit rules present opportunities for your home and your savings. These credits are usually applied to your income tax liability and can offset the cost of investing in energy-efficient technologies in your home. Since the Inflation Reduction Act will span over 10 years its recommended to seek out professional help when managing your credits and maximizing your benefits. 

Stay Up to Date 

As the government continues to prioritize sustainability and energy efficiency, staying informed about updated credit rules is crucial for optimizing tax savings. By understanding the recent changes, individuals and businesses can make informed decisions that align with both their financial objectives and the broader goal of creating a more sustainable future. Given the complexities of tax regulations, seeking the expertise of a qualified tax professional is extremely helpful. At Tostrud & Temp we’re proud to offer local tax expertise. We can provide you with personalized guidance based on your specific situation, ensuring that you maximize the benefits of the updated energy tax credit rules while staying compliant with the latest regulations. Contact us or stop by our office in downtown La Crosse, Wisconsin today to discover your qualifying tax credits.