Introduction
Homeowners who invest in energy-efficient upgrades can qualify for valuable tax credits, helping them save money while reducing their carbon footprint. The IRS offers two main energy tax credits:
- Energy Efficient Home Improvement Credit (EEHIC) – Covers home improvements like insulation, windows, and HVAC systems.
- Residential Clean Energy Credit (RCEC) – Covers renewable energy systems like solar panels and battery storage.
This guide explains how to claim these tax credits, eligibility rules, and how much you can save on your 2025 tax return.
Energy Efficient Home Improvement Credit (EEHIC) (IRC §25C)
The Energy Efficient Home Improvement Credit allows homeowners to claim 30% of eligible home improvement costs each year, up to specific limits.
What Qualifies for the Credit?
- Windows & Doors: Up to $600 for energy-efficient windows, doors, and skylights.
- Insulation & Air Sealing: Covers spray foam, fiberglass, and weather stripping (no specific cap).
- HVAC Systems: Up to $2,000 for high-efficiency heat pumps, central AC, or boilers.
- Water Heaters: Up to $600 for energy-efficient electric or gas water heaters.
- Electrical Upgrades: Up to $600 for upgrades like breaker panels to support energy-efficient home systems.
Annual Credit Limits
- Maximum $3,200 per year ($1,200 for general improvements + $2,000 for heat pumps and water heaters).
- No lifetime limit—you can claim the credit each year.
Example:
John installs new energy-efficient windows ($1,500) and a heat pump ($2,500) in 2025.
- 30% of windows = $450
- 30% of heat pump = $750 (capped at $2,000)
- Total tax credit: $1,200 applied to his tax return.
Residential Clean Energy Credit (RCEC) (IRC §25D)
The Residential Clean Energy Credit covers renewable energy systems that generate power for your home.
What Qualifies for the Credit?
- Solar panels (photovoltaic systems)
- Solar water heaters
- Battery storage (for home energy storage, even without solar panels)
- Wind turbines & geothermal heat pumps
- Fuel cells
Credit Amounts
- 30% of total installation costs (no cap).
- Credit is available through 2032, then phases down:Â
- 26% in 2033
- 22% in 2034
Example:
Emily installs a $15,000 solar panel system in 2025.
- She claims 30% of $15,000 = $4,500 tax credit on her return.
Key Differences Between EEHIC & RCEC
| Feature | Energy Efficient Home Improvement Credit (EEHIC) | Residential Clean Energy Credit (RCEC) |
|---|---|---|
| Covers | HVAC, insulation, windows, doors | Solar, wind, battery storage |
| Credit Amount | 30% of costs (capped at $3,200/year) | 30% of costs (no cap) |
| Lifetime Limit? | No (claimed annually) | No |
| Expires? | 2032 | Phases out after 2034 |
How to Claim Energy Tax Credits
Step 1: Confirm Eligibility
- The home must be your primary residence (rentals do not qualify).
- Energy upgrades must meet Energy Star or IRS efficiency standards.
Step 2: Keep Documentation
- Receipts & invoices from contractors or suppliers.
- Manufacturer certification statement proving the equipment qualifies.
Step 3: File the Correct IRS Form
- Use Form 5695 (Residential Energy Credits).
- Carry forward any unused credits to future tax years.
Step 4: Claim the Credit on Your Tax Return
- Report the credit on Schedule 3 (Form 1040).
- Use tax software or consult a CPA to maximize your benefits.
Conclusion
Energy-efficient home upgrades can lower your tax bill and help you invest in long-term energy savings. Whether you’re installing solar panels or upgrading insulation, these tax credits make green home improvements more affordable.
Need help? Schedule a consultation with Anshul Goyal, CPA EA FCA to ensure you claim the right energy tax credits.
Disclaimer
This article is for informational purposes only and should not be considered tax, legal, or financial advice. Tax laws change frequently, and individual circumstances vary. Consult a qualified tax professional, such as Anshul Goyal, CPA EA FCA, before making any tax-related decisions.
FAQs
1. Can I claim both the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit?
Yes, homeowners can claim both credits in the same year if they make qualifying upgrades.
2. Does installing a home battery storage system qualify for a tax credit?
Yes, battery storage systems qualify under the Residential Clean Energy Credit, even if they are not connected to solar panels.
3. Can landlords claim these energy tax credits?
No, these credits only apply to primary residences (not rental properties).
4. What if my tax credit is higher than my tax liability?
If the credit exceeds your tax owed, you can carry forward the remaining credit to future years.
5. What IRS form do I use to claim energy tax credits?
Use Form 5695 (Residential Energy Credits) and attach it to Form 1040.