August 19th update: It has come to my attention that the original Example 3 was not clearly supported by the statute. This has been fixed and I apologize for the error.
December 27th update: On December 22nd, the IRS published a helpful FAQ available here, which among other things clarified that the $2,000 credit for heat pumps is in addition to the $1,200 credit for building envelope improvements, for a maximum possible credit of $3,200. Huzzah!
On Friday, the House passed the Inflation Reduction Act; it now goes to President Biden for his signature. There are three new tax credits in this law every homeowner should know about: the Energy Efficient Home Improvement Credit, the Residential Clean Energy Credit, and the Alternative Fuel Vehicle Refueling Property Credit (for electric vehicle chargers).
Note: These credits are nonrefundable—in other words, you need to have at least $500 of tax liability to claim a $500 credit.
The Energy Efficient Home Improvement Credit (IRC § 25C)
Section 13301 of the Inflation Reduction Act rebrands the Nonbusiness Energy Property credit as the “Energy Efficient Home Improvement Credit.” The bill extends the credit to December 31, 2032, and significantly expands the credit to be more generous. These new rules apply to property placed in service after December 31, 2022.
What qualifies for the tax credit?
In general, the credit is equal to 30% of what you spent on qualified energy efficiency improvements, residential energy property, and home energy audits during the year (though there are annual limits, which I describe later).
Qualified energy efficiency improvements
Qualified energy efficiency improvements are building envelope improvements. This includes insulation, energy-efficient windows, and energy-efficient exterior doors.
To qualify for the credit, these improvements to the building envelope need to meet certain criteria:
- Windows – must meet Energy Star most efficient certification requirements.
- Exterior doors – must meet applicable Energy Star requirements.
- Insulation – must meet prescriptive criteria from a recent International Energy Conservation Code.
In addition to these component-specific rules, there are some general rules the improvements must follow, too. The improvement must be installed in the United States, you must be the original user of the improvement, you must reasonably expect to use the improvement for at least 5 years, and the improvement must be to your principal residence (as that term is defined by Section 121 of the Internal Revenue Code).
Residential energy property
Residential energy property is, in a nutshell, energy-efficient versions of appliances that heat or cool the air inside of your home, or heat water in your home. The term includes:
- Heat pumps, central air conditioners, water heaters, furnaces, and boilers as long as the appliance meets the highest efficiency tier (not including advanced tiers) established by the Consortium for Energy Efficiency;
- Biomass stoves and boilers with a thermal efficiency rating of at least 75 percent;
- Certain energy-efficient oil furnaces and hot water boilers; and
- Cost to upgrade a panel to at least 200 amps if the panel upgrade was installed in conjunction with, and enabled the installation and use of, any qualified energy efficiency improvements or other residential energy property (e.g., your home needed a panel upgrade to install an electric heat pump).
You can include labor costs in the total cost of residential energy property when calculating your credit.
As is the case for building envelope improvements, there are some additional rules you’ll need to follow to get a credit for purchasing one of these energy efficient appliances. The property must be installed in the United States, you must be the original user of the property, and the property must be installed on or in connection with a dwelling unit you use as a residence (not necessarily your principal residence).
Home energy audits
A home energy audit is exactly what you’d expect: a home energy auditor comes to your home and identifies the most significant and cost-effective energy improvements you could make. Predictably, the audit must be for a home in the United States and it must be for your principal residence. The Treasury will explain certification requirements for home energy auditors in future regulations.
How will I know if the improvement I purchased qualifies for the credit?
Starting in 2025, the Treasury will have a new system of product identification numbers to verify if property is eligible for the credit. Before then, you’ll have to rely on the definitions in the statute (explained in the previous section).
How to calculate the credit
As mentioned above, the general formula is that the credit is equal to 30% of what you spent on “qualified energy efficiency improvements,” “residential energy property,” and “home energy audits” during the year. But there are limits to the credit.
Annual limits
In my opinion, these caps are too complicated. But we’re stuck with the complexity, so here we go:
Component-specific limits
Windows. Limited to $600 per taxpayer per year. So, you could spend up to $2,000 on new energy-efficient windows in a given year and still get the full credit, since 30% × $2,000 = $600.
Exterior doors. Limited to $250 per door, and $500 for all doors, per taxpayer per year. So, you could spend up to $833 on an energy-efficient door—and $1,667 on multiple energy-efficient doors—in a given year and still get the full credit, since 30% × $833 = $250 and 30% × $1,667 = $500.
Residential energy property. Limited to $600 per taxpayer per year, just like windows.
Home energy audits. Limited to $150 per taxpayer per year.
Total annual limit
The total annual cap to the credit is $1,200 per year. This $1,200 cap applies to almost every type of improvement that qualifies for the credit: e.g., windows, doors, insulation, air conditioners, furnaces, panel upgrades, home energy audits.
Example 1: In 2023, a homeowner spends $2,500 on Energy Star most-efficient windows, $700 on one Energy Star door, $900 on another Energy Star door, and $5,000 to upgrade their home’s insulation. They calculate their tax credit as follows:
| Windows | |||
| Total window cost | $ | 2,500 | |
| Multiply total cost by 30% | 750 | ||
| Tentative credit for windows: Lesser of 30% of cost or $600 | $ | 600 | |
| Doors | |||
| Total cost of first door | 700 | ||
| Multiply total cost by 30% | 210 | ||
| Tentative credit for first door: Lesser of 30% of cost or $250 | 210 | ||
| Total cost of second door | 900 | ||
| Multiply total cost by 30% | 270 | ||
| Tentative credit for second door: Lesser of 30% of cost or $250 | 250 | ||
| Tentative credit for all doors before limit | 460 | ||
| Tentative credit for all doors: Lesser of sum of credit for all doors or $500 | 460 | ||
| Insulation | |||
| Total cost of insulation | 5,000 | ||
| Tentative credit for insulation: Multiply total cost by 30% | 1,500 | ||
| Total credit | |||
| Sum of credit for windows, doors, and insulation before limit | 2,560 | ||
| Total credit: Lesser of credit before limit or $1,200 | $ | 1,200 | |
Because it’s an annual limit, you can sometimes get a larger credit if you break a project up over multiple years.
Example 2: Assume the same facts as before, except the homeowner installs the windows and doors in 2023 and the insulation in 2024. In this case, the total credit for the project is $2,260, while in Example 1 it was only $1,200:
| Tax Year 2023 | ||||
| Windows | ||||
| Total window cost | $ | 2,500 | ||
| Multiply total cost by 30% | 750 | |||
| Tentative credit for windows: Lesser of 30% of cost or $600 | $ | 600 | ||
| Doors | ||||
| Total cost of first door | 700 | |||
| Multiply total cost by 30% | 210 | |||
| Tentative credit for first door: Lesser of 30% of cost or $250 | 210 | |||
| Total cost of second door | 900 | |||
| Multiply total cost by 30% | 270 | |||
| Tentative credit for second door: Lesser of 30% of cost or $250 | 250 | |||
| Credit for doors before limit: Sum of credit for all doors | 460 | |||
| Tentative credit for all doors: Lesser of sum of credit for all doors or $500 | 460 | |||
| Total credit | ||||
| Sum of credit for windows and doors before limit | 1,060 | |||
| Total 2023 credit: Lesser of credit before limit or $1,200 | $ | 1,060 | ||
| Tax Year 2024 | ||||
| Insulation | ||||
| Total cost of insulation | $ | 5,000 | ||
| Tentative credit for insulation: Multiply total cost by 30% | 1,500 | |||
| Total 2024 credit: Lesser of credit before limit or $1,200 | $ | 1,200 | ||
The heat pump exception
The $1,200 annual limit and the $600 residential energy property limit don’t apply to heat pumps; instead, heat pumps get their own annual credit cap of $2,000. So, you could spend up to $6,667 on a new heat pump in a given year and still get the full credit, since 30% × $6,667 = $2,000. (This exception applies to biomass stoves and boilers, too.)
Example 3: In 2023, a homeowner spends $6,000 to install a new heat pump. They calculate their tax credit as follows:
| Heat pump | |||
| Total cost of heat pump | 6,000 | ||
| Multiply total cost by 30% | 1,800 | ||
| Credit for heat pump: Lesser of 30% of cost or $2,000 | 1,800 | ||
One final comment about these credit limits: I suspect the IRS will issue an updated version of Form 5695 within the next several months. (That’s the form you’ll use to claim these credits.) Once that’s available, you can use the form and its instructions as you plan your home improvements to confirm you understand the credit formulas correctly.
How utility rebates interact with the credit
I mentioned this in our blog post on the Inflation Reduction Act for real estate investors, but it’s worth repeating here: there’s a bit of tax law, Section 136, that exempts some utility rebates from taxable income.
More specifically, Section 136 says a taxpayer’s gross income doesn’t include “any subsidy provided (directly or indirectly) by a public utility to a customer for the purchase or installation of any energy conservation measure.” This section also says, “no deduction or credit shall be allowed for, or by reason of, any expenditure to the extent of the amount excluded under subsection (a) for any subsidy which was provided with respect to such expenditure.”
That’s potentially relevant for all tax credits I’ll mention in this article, but it’s particularly relevant to the Energy Efficient Home Improvement Credit. It means that when you calculate your tax credit for something like new windows or a new heat pump, you’ll need to first subtract any utility rebates from the cost of the improvement, and then multiply the cost by 30%.
The Residential Clean Energy Credit (IRC § 25D)
Section 13302 of the Inflation Reduction Act rebrands the residential energy efficient property credit as the “Residential Clean Energy Credit”—a fitting name, since this credit is most commonly used for residential solar panels.
The bill extends the credit to December 31, 2034, alters the phase-out schedule, and slightly modifies which property qualifies for the credit. For the most part, the new rules apply to property placed in service after December 31, 2021. Starting in 2023, biomass stoves no longer qualify for a credit under Section 25D, but battery storage technology does.
The new phase-out schedule is:
| For improvements installed in: | The credit percentage is: |
| 2021 | 26% |
| 2022 through 2032 | 30% |
| 2033 | 26% |
| 2034 | 22% |
| 2035 onward | 0% |
Example 4: You install a $20,000 solar panel system on your home in 2022. Your credit is 30% of the cost of the system—so, $6,000.
Example 5: You install a $20,000 solar panel system on your home in 2033. Your credit is 26% of the cost of the system—so, $5,200.
A final comment about the Residential Clean Energy Credit: while this credit isn’t refundable, you can carry it forward to reduce your tax liability in future years.
Applying the credits to condominiums and cooperative housing associations
If a cooperative housing association installs property or improvements that qualify for a credit under Sections 25C or 25D, the tenant-stockholders of the corporation claim the credit in much the same way they claim an itemized deduction for property taxes. In other words, the expenditure is allocated to the tenant-stockholder on their “proportionate share” of the expenditure. The tax law uses similar, albeit less detailed, language to explain how to allocate expenditures of a condominium management association.
For example, in my housing cooperative I own 55 shares, which is 2.8947% of the total outstanding stock in the corporation (1,900 shares). If my building spends, say, $60,000 in 2025 to replace some of our windows with Energy Star most efficient windows, I can report on my 2025 personal tax return that I spent $1,737 on those windows (because, well, through the co-op dues I did) and claim a $521 credit for that year.
One final comment about energy credits and housing cooperatives: in 2010, the Office of Chief Counsel noted in IRS Information Letter 2010-0244 that when a tenant-stockholder arranges for and purchases the improvement themselves, they are entitled to a credit based on the entire expenditure (as one would expect).
The EV Charger Credit (IRC § 30C)
I discussed the new EV charger credit in a previous blog post for real estate investors, so I won’t go into too much detail here. But know that a smaller version of the EV charger credit is available for homeowners located in a low-income community or rural area. That credit is 30% of the cost of the charger up to a $1,000 limit. And if you’re a homeowner, you don’t need to worry about the prevailing wage and apprenticeship rules that apply to businesses and real estate investors.
This is the best writeup I’ve seen yet, thank you for putting this together! One question I have that I don’t see an answer to is this: When do the “qualified energy efficiency improvements” credits start – i.e., can I perform my insulation and replacement window projects this year (2022) and have it qualify for the 30% credits or do I need to wait until 2023?
Thank you for the kind words!
The Inflation Reduction Act extends the old, small credit for insulation to apply to tax year 2022. So you could get a modest ($500 max) credit for some new insulation if you made the improvement this year. But you’ll have to wait until 2023 to get the new, bigger credit.
I’m not sure this is correct. In the bill, at the end of the section on the Energy Efficient Home Improvement Credit in the bill, it says this:
(i) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as otherwise provided by this subsection, the amendments made by this section shall apply to property placed in service after December 31, 2022.
(2) EXTENSION OF CREDIT.—The amendments made by subsection (a) shall apply to property placed in service after December 31, 2021.
So it says, “except at otherwise provided in this subsection”, then immediately after that, in that subsection, it says the date for amendments is for property placed in service after Dec. 31, 2021.
I have seen this interpreted by several summaries online as meaning that the tax year 2022 IS included as eligible for the new credits.
You’re correct that’s the language in the bill. But look carefully at what it says:
“(2) EXTENSION OF CREDIT.—The amendments made by subsection (a) shall apply to property placed in service after December 31, 2021.”
This extends the tax credit to the end of 2032, because subsection (a) of Section 13301 of the Inflation Reduction Act is what extended the credit.
“(1) IN GENERAL.—Except as otherwise provided by this subsection, the amendments made by this section shall apply to property placed in service after December 31, 2022.” (emphasis added)
This is the language that says all of the new rules, described in subsections (b) through (h) of Section 13301 of the Inflation Reduction Act (and in this blog post), don’t apply until January 1, 2023 at the earliest. Taken together, this means the credit as it’s written right now will be available to taxpayers for tax year 2022.
Right, but it also says “except as otherwise provided by this subsection”….then the (2) of the subsection says “The amendments made by subsection (a) shall apply to property placed in service after December 31, 2021.”, and subsection (a) is basically just saying that the credit is extended until Dec. 31, 2032. I don’t see how this means that people who bought qualifying property ONLY in tax year 2022 are going to get screwed out of the new credit allowances. They aren’t doing it that way for the clean energy credit extension (except for the new battery portion), the 30% new credit allowance for that starts after Dec. 31 2021. Why would they do that? It just doesn’t make sense to me to interpret it that way.
Thank you for the info, I’ve been scouring the internet for anything related to the new rebate/tax credit. What i can’t seem to figure is this: i see a rebate for low to moderate income earners to the tune of $8,000 for heat pumps. I’m actually ready to install one right now but I’m a bit concerned i may miss out on this rebate if I jump the gun on this. I’ve seen conflicting reports that state, these rebates will be point of sale rebates not tax credits for the moderate to low income earner. I really want it install this thing sooner rather than later. So my question is should I wait for more info or do you know for a fact these rebates will be offered retroactively to 2022 or being that i installed after the bill was signed would I be safe?
Unfortunately my expertise is in tax credits, not rebates, so I’m probably not the best person to ask. My understanding is that many of those programs will be managed by state energy offices, so guidance from those agencies may be a good first place to start.
https://www.energy.gov/eere/femp/state-energy-offices-and-organizations
Good luck!
My wife and I own and live in a free standing home in an HOA that is thinking about installing solar panels and backup batteries on/for a recreation center building.
As a homeowner will we be eligible for our share of the credits even though the the solar panels and backup batteries will not be installed on/for a residence?
Eldon Holl
Good question! And unfortunately I don’t know the answer. My guess is it will depend on whether the recreation building counts as a “structure appurtenant to the dwelling unit.” But that’s just me speculating–I think we’ll have to wait for future IRS guidance on that one.
Thank you for this summary – it’s very helpful! Question – will mini-split heat pump systems (ductless heat pump) have any limitations within the bill, or simply qualify the same as a whole-house heat pump system? Also, are the solar panels restricted to “original user of the product”, or can used panels qualify? It’s a common practice in our area for panels coming off of large residential lease programs in the SW to come up here and be sold in small sets for off-grid cabins.
Thanks!
Tracey Roberts
Abundance Financial and Tax Services, LLC
I see nothing in the statute that differentiates between types of heat pumps. Maybe the IRS will clarify in future guidance how it should work for mini-split systems?
I apologize, I just realized I missed one of your questions.
I don’t believe the solar panel credits require original use to begin with the taxpayer the way the home improvement credits do.UPDATE: I got this wrong. Used solar panels aren’t eligible for the credit. I apologize for the error.This webpage from the Department of Energy is, as of this writing, a little bit out of date because it predates the Inflation Reduction Act. But it still provides a lot of useful details about how the tax credits for residential solar panels work:
https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics
I have purchased window for my house and a new door this year 2022 do I receive tax credit back for that.
For 2022 the old credit rules will apply: https://www.irs.gov/newsroom/energy-incentives-for-individuals-residential-property-updated-questions-and-answers
Does this apply to new construction? I’m having to tear down and build new on my family’s plot and I’d love to take advantage of these tax breaks!
Good question! It depends. This notice from the IRS is soon to be out of date, but I think Q&A 4 answers your question:
https://www.irs.gov/pub/irs-drop/n-13-70.pdf
Thanks so much for explaining this! I just want to be clear, though. I was considering replacing a whole house of windows for about $25k before the end of the calendar year. Am I understanding correctly, then, that I would only get a $600 credit for doing so (not exactly exciting, haha)? Or can I carry it over for the next few years? I’d break it up, but then they become more expensive each time because 1.) window pricing increases and 2.) extra costs of just bringing a window team out multiple times for the install. My guess is it’s probably at least $600 just to get them out to my house each time.
Thank you!
I think you’ve got the basic idea right. Unfortunately the 25C credit doesn’t carry over from one year to the next. And the new $600 annual limit for windows doesn’t start until Jan 1, 2023; until then the old (lifetime) limit for energy-efficient windows is $200.
Good luck on your window project!
I read elsewhere that the new versions of the Energy Efficient Home Improvement Credit would not be refundable but would be able to have unused portions rolled over into future tax years, as is with the Clean Energy Credit.
Do you know the source of this information? I would love for this to be so!
Back in 2013, the IRS published Notice 2013-70 which said, in part:
Section 13301 of the Inflation Reduction Act amended IRC § 25C and section 13302 amended IRC § 25C. I didn’t see anything in either section of the IRA that changed the carryover rules for these credits.
Will I need to itemize in order to receive these tax credits?
Nope!
We own a 2024 sq ft ranch style single family home built in 1976. It is time we upgrade and replace the Original gas furnace and cetral air unit to a more efficient system. Yes, we still use the original installation. Now, will we be able to get reabates, as we do qualify under the income requirements, as we are both retired and live on our SSI, pension and savings/investimates well under average income in Dickinson ND.
Also, do we qualify for rebates on the energy retrofit estimator fees, as we need to replace/upgrade our main service electrical panel? ( the company manufacturer went out of business and breakers are not produced and sold anymore). Our annual heating and cooling bills, gas and electric, are aproximatley $ 2500.00. We plan to upgrade our units in 2023. Thanks, Lyle B.
Hi Lyle,
As I mentioned to GBalk, my area of expertise is tax credits, not rebates, so unfortunately I’m not the right person to ask. Maybe try your state’s energy office?
Good luck!
There also seems to be a major change in what windows qualify for the credit between 2022 and 2023 when the Energy Efficient Home Improvement Credit kicks in. For 2022 the $200 credit is based on products meeting ENERGY STAR for your zone. For this new credit is seems to abandon ENERGY STAR and use ENERGY STAR Most Efficient criteria only for the $600 & $500 limited credits. Is that correct?
I believe you’re mostly correct. The new rules (for 2023-2032) say windows need to be Energy Star most efficient to qualify. For doors, the new rules simply say the door needs to meet “applicable Energy Star requirements.” The old rule for both windows and doors (still applicable in 2022) was that they needed to meet version 6.0 Energy Star program requirements.
This is a terrific write up! I’ve been scouring the internet for more details on this new Act and have previously been left wanting.
I do have a question, though: Do you know if anything in this Act changed the Order of Application of credits? I believe my federal tax liability will be around $13k, but it will be largely wiped out by the Child Care Expense credit, the old EV credit (it was purchased a few months before this bill was passed) and the child tax credit. I was considering purchasing solar panels for my residence, as the old credit (26%) would have applied after these other credits I mentioned and could be carried forward up to 5 years. I’m nervous to do so now, however, in case the order changed (if the solar credit was applied first, it would eliminate most of my tax liability and leave my other credits unused and they don’t carry forward).
Thank you! And I don’t think the order changed? The solar panel credit does still carry forward.
I read somewhere that the windows credit is only if you own money to the IRS. Meaning, that if you get a rebate in your taxes, it wont be reflected. Is this correct? Also, is there an income requirement to benefit from it?
These are all nonrefundable credits, so they can’t exceed your tax liability for the year. Check line 16 of your 2021 Form 1040—that will tell you how much income tax you owed in 2021, which will hopefully give you a sense of how much of a credit you can claim in future years.
I find this all quite confusing. I had an expensive, high-efficiency heat pump system (ductless mini-split) installed in May of this year, 2022. Will I be eligible to claim any tax credit for this? What percentage of the cost, if any? Thank you for your help!
For an installation in 2022, the existing rules for the § 25C and § 25D credits apply. Until a few days ago (August 16th, 2022), those credits were expired as of December 31st, 2021. Now, because of the Inflation Reduction Act (which Biden signed into law on August 16th 2022), the old credits are available for taxpayers in 2022. The old credit is 10% of the cost, not 30%, and has a lifetime limit of $500.
See the fourth question on this Q&A for more information on how the old credit works (the article hasn’t been updated yet for the Inflation Reduction Act, so it still claims the credit expired in 2021): https://www.irs.gov/newsroom/energy-incentives-for-individuals-residential-property-updated-questions-and-answers
FWIW, I think Congress made this way too confusing. Especially for a credit that’s supposed to be useful to ordinary homeowners.
Great and very informative write up! As a first time homeowner (Condo) and had to replaced the 30 years old heat pump and air-handler, would this 30% applies to both product and installations?
The only thing I’m afraid of is that I didn’t qualify for any energy rebates due to the following:
1. Condo has limited space for placement of air handler (utility closet). Also there was no model that would meet the energy seer/hspf requirements.
2. Next closest thing are ductless systems but the condo do not allowed them due to share walls etc.
In the end, it was out of pocket and it was a large chunk during Covid when cost and prices are through the roof.
Thank you for the kind words!
The 30% credit will only apply to an air-source heat pump installation after December 31, 2022. If the install was before 2023, then the old credit rules apply (generally, 10% of cost and $500 lifetime limit on the credit). In either case, you can include labor costs when calculating the credit.
Hello! Are you aware of if the Section 25C credit for insulation is for material AND labor, or just material? Currently the tax credit today is limited to $500 lifetime, and 10% of the cost of material only for insulation. I cannot figure out from reading the law and others’ take on it if it now will include material AND labor. It is clear for “residential energy property” but not for “Qualified energy efficiency improvements”
Years ago, the IRS said in Notice 2013-70 (Q&A 8) “a taxpayer may not include the labor costs for qualified energy efficient building envelope components including a qualifying insulation material or system, exterior window, skylight, [or] exterior door.” Section 13301 of the Inflation Reduction Act is what amended Section 25C, and I didn’t see anything in there that changed the rules for when labor costs could be included. So, unfortunately I don’t think you’ll be able to include labor costs of insulation when figuring the credit. (FWIW, I find it odd that Congress chose to write the law that way.)
The complexity of these rules might explain why 87,000 new IRS agents are needed! Plenty of opportunities to calculate incorrectly.
They made this way too complicated.
Thank you for the examples. They confirmed what I suspected: we’re too poor to use these credits. Taking just one of your examples. If we wanted to improve the insulation in our attic to the tune of $5,000, there’d be a $1,200 credit but we’d still have to pay $3,800. That’s a non-starter. Given that this is supposed to help low-to-middle income families, who can actually use it? Qualifying for the credits appears to disqualify you for paying for the service. Am I missing something?
You may want to look into the High-efficiency Electric Home Rebate program and the HOMES program. Those programs, new in the Inflation Reduction Act, will be administered by state energy offices. Here’s a list of state energy offices and links to their websites: https://www.energy.gov/eere/femp/state-energy-offices-and-organizations. There’s a limited pot of grant money for the programs, so you’d want to get in line early.
There’s also an existing program, the Weatherization Assistance Program, which may be useful to you: https://www.energy.gov/eere/wap/weatherization-assistance-program
Good luck!
Excellent analysis, thank you for preparing & sharing!
Two 25C questions:
1. Are the $2k heat pump and $1.2k credits cumulative? For example, if a taxpayer incurs at least $6k in qualifying heat pump costs and at least $3.6K in qualifying energy efficiency improvements in the same tax year, then is the credit $3.2k?
2. Could a taxpayer incurring $12k (say, unit + labor) for a qualifying heat pump project pay $3k in Dec. 2023 and $3k in Jan. 2024, and then claim the $2k credit in both tax years?
Thank you! And those are both excellent questions.
The answer to your first question is that I don’t know. At first, I assumed the credit worked as you described. But an interpretation I’ve heard from some smart people (e.g. Jesse Jenkins) is that if you buy a heat pump, your maximum credit is $2,000, and if your heat pump credit goes above $1,200, you can’t get a credit for anything else—and I think that’s also a reasonable interpretation of what Congress wrote. So my plan now is to wait for guidance from the Treasury to definitively answer this question, if only because I’ve seen Treasury regulations that took more liberties with less ambiguity (*cough* GILTI).
12/27 UPDATE: The IRS has weighed in and endorsed the more generous interpretation of the credit. Woohoo!
To your second question: for a heat pump project I think it’s possible that might work. As of Jan 1, 2023, the relevant language (emphasis added) is:
So that’s probably another thing to look for in future guidance.
I am replacing 23 windows in my 1960 ranch. cost would be $8.5K to $9K. Because there is a $1,200 annual limit to the tax credit should I therefore break the project up into 3 different calendar years starting in 2023 to maximize the Tax Credit?
It’s an idea to consider! Remember, too, that the limit for windows is $600.