The Energy Efficient Home Improvement (EEHI) Tax Credit

Who Should Read This?

This article is for homeowners looking to make their homes more energy-efficient while saving money, and for contractors who can benefit from helping clients take advantage of tax incentives. It also addresses pain points related to the upfront cost of home improvements by showing how tax credits can offset expenses.

The Energy Efficient Home Improvement (EEHI) Tax Credit offers a powerful incentive for homeowners to upgrade their homes with energy-saving improvements. By offsetting some of the upfront costs, this credit encourages homeowners to invest in greener technologies while saving money on their tax bill.

Here's what you need to know about the EEHI tax credit, including eligibility, how it works, and how to claim it.

What Is the EEHI Tax Credit?

The Energy Efficient Home Improvement Tax Credit, part of the Inflation Reduction Act (IRA) of 2022, is designed to help homeowners reduce the cost of energy-efficient upgrades. The credit is available for qualifying home improvements made between 2023 and 2032 and can cover a percentage of the installation costs of various energy-efficient upgrades, such as new windows, doors, insulation, and heat pumps.

The credit is non-refundable, meaning it can reduce your tax liability but won’t provide a refund if your credit exceeds your tax bill. However, the savings can be substantial for homeowners planning energy-saving improvements.

How the EEHI Credit Affects Homeowners

The EEHI tax credit can significantly lower the costs of certain energy-efficient home improvements. With rising energy costs, upgrading your home to use energy more efficiently can lower your utility bills in the long run. The credit incentivizes improvements like:

  • Installing insulation to reduce heat loss

  • Replacing windows and doors with energy-efficient models

  • Installing energy-efficient heating and cooling systems

This can benefit homeowners who want to:

  • Lower their energy bills

  • Increase the comfort of their home

  • Reduce their carbon footprint

Annual Credit Limits:

  • The tax credit offers 30% of the total cost of qualifying improvements, with certain limits for each type of improvement.

    • Up to $600 for eligible doors or windows

    • Up to $2,000 for heat pumps, water heaters, and biomass stoves

    • $1,200 annual maximum (except for heat pumps, which are capped at $2,000 annually)

For example, if you spend $5,000 on a heat pump in 2024, you can claim up to $1,500 (30%) of the cost, reducing your tax bill by that amount.

Eligibility Criteria for Homeowners

To qualify for the EEHI tax credit, the following conditions must be met:

  • Principal residence: The home must be your primary residence (investment properties do not qualify).

  • Types of homes: Both single-family homes and multi-family residences qualify.

  • Energy-efficient upgrades: Only specific upgrades are eligible for the credit. For instance, the windows or heating systems installed must meet the energy efficiency standards set by the U.S. Department of Energy (DOE).

  • Installed after 2022: The improvements must have been made after January 1, 2023, and before January 1, 2033.

Homeowners of All Income Levels Can Benefit
There are no income restrictions for this credit, meaning homeowners across various income brackets can take advantage of it.

How Contractors Can Benefit

Contractors specializing in energy-efficient home upgrades can also leverage the EEHI credit to drive business. Homeowners are more likely to commit to upgrades when they know they can recoup some of the costs through tax credits. By staying informed and educating clients about these credits, contractors can:

  • Increase sales by highlighting potential savings

  • Differentiate their services by specializing in tax-credit-eligible products and systems

  • Build trust with clients by guiding them through the tax credit process

Contractors can serve as an invaluable resource by ensuring the installations meet energy efficiency standards and helping clients understand how to maximize their credits.

How to Claim the EEHI Tax Credit

For Homeowners:

  1. Save Your Receipts and Documentation: Keep a detailed record of your home improvements, including invoices and receipts, to provide proof of the costs.

  2. Manufacturer's Certification Statement: Ensure you get a manufacturer's certification statement that verifies the product qualifies for the EEHI tax credit.

  3. Form 5695: When filing taxes, you'll use IRS Form 5695, titled "Residential Energy Credits," to claim the credit. Attach this form to your federal tax return.

  4. Know the Limits: Make sure you're aware of the annual limits so you don’t claim more than the allowed amount.

Pain Points the EEHI Credit Alleviates

  1. High upfront costs of energy-efficient upgrades – Many homeowners are deterred by the initial expense of installing energy-efficient systems. The EEHI tax credit helps offset those costs, making these improvements more accessible.

  2. Rising energy bills – Energy-efficient upgrades can lower heating, cooling, and electricity bills in the long term. The tax credit helps encourage these investments by reducing the financial burden.

  3. Environmental concerns – Homeowners looking to reduce their carbon footprint may find the cost of upgrades daunting. The EEHI tax credit makes environmentally friendly home improvements more affordable.

Final Thoughts

The Energy Efficient Home Improvement (EEHI) Tax Credit is a valuable opportunity for homeowners to enhance their property’s energy efficiency while saving on both utility bills and taxes. Contractors, by promoting this credit, can boost business and help homeowners unlock substantial savings. Whether you're a homeowner planning improvements or a contractor advising clients, taking advantage of the EEHI tax credit is a smart move for financial savings and environmental responsibility.

For more details or specific tax advice, consult with a tax professional or visit the IRS website for the most current information.

Jose Garcia