Energy Efficient Home Improvement Credit

The Act will essentially revive the Nonbusiness Energy Property Credit (“NEPC”), which expired at the end of 2021, and rename it the Energy Efficient Home Improvement Credit (“EEHIC”).

The NEPC — the old, expired credit — allowed a homeowner to claim a tax credit of 10% of the costs of installing certain energy-efficient insulation, windows, doors, roofing, and similar energy-saving improvements, and 100% of the costs associated with installing certain energy-efficient water heaters, heat pumps, central air conditioning systems, furnaces, hot water boilers, and air circulating fans. But the NEPC had a lifetime limit of $500 for the credit and a specific lifetime limit of $200 for new windows. These low-dollar lifetime limits severely reduced the value of the tax credit.

The EEHIC — the new credit — will soon offer homeowners substantially improved tax incentives for qualifying home improvements. We say “soon” because for the remainder of 2022, the EEHIC only revives the NEPC “as is”, so the “old” rules and limits of the NEPC apply to the EEHIC for 2022. The credit is also being expanded to cover certain biomass stoves and boilers, electric panels and related equipment, and home energy audits. However, roofing and air circulating fans will no longer qualify.

Beginning in 2023, the EEHIC credit will be equal to 30% of the costs for all eligible home improvements made during the year, up to a $1,200 annual limit, although some additional limits will apply as outlined below:

  • $150 for home energy audits,
  • $250 for an exterior door ($500 total for all exterior doors),
  • $600 for exterior windows and skylights; central air conditioners; electric panels and certain related equipment; natural gas, propane, or oil water heaters; natural gas, propane, or oil furnaces or hot water boilers, and $2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and boilers (for this one category, the $1,200 annual limit may be exceeded).

** Everyone’s tax situation is different, please make sure to consult with your tax advisor or accountant for a specific understanding as to your possible use of state or federal energy tax rebates or credits**