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How to Take Advantage of ENERGY STAR Tax Credits

energy star tax credits

Many Portland homeowners are facing rising utility bills and are looking for a way to reduce their environmental footprint. Making your home more energy efficient is a great way to achieve both goals. Plus, you can even get rewarded for your efforts through ENERGY STAR tax credits. ENERGY STAR tax credits are incentives offered by the government to encourage homeowners to make energy-efficient upgrades to their homes. These credits come in the form of deductions on your taxes and can help offset the cost of making energy-efficient improvements. Let’s dive in a find out how you can make ENERGY STAR work for you and your home improvements.

Understanding Energy Star Tax Credits

ENERGY STAR tax credits are financial incentives for homeowners who make energy-efficient improvements to their homes, such as installing ENERGY STAR-certified windows or heating and cooling systems. These credits reduce the amount of income tax owed, dollar-for-dollar, incentivizing homeowners to invest in eco-friendly upgrades by lowering the net cost of these improvements.

Eligibility Requirements

To qualify for ENERGY STAR tax credits, your home improvements need to meet specific criteria. Here’s a breakdown of the key eligibility requirements:

  • Energy Efficiency: The improvements must significantly increase the energy efficiency of your home. Only products that have earned the ENERGY STAR label for their high efficiency standards are eligible.
  • Installation in Primary Existing Residence: The energy-efficient upgrades must be installed in your primary residence. New construction, rental properties, and second homes do not qualify for most improvements – but double-check to make sure.
  • Compliance with Tax Year: The tax credits are available for specific improvements made during certain tax years, so ensure your upgrades align with current eligibility periods.
  • Proof of Purchase: Keep your receipts and certifications. You’ll need to provide proof of purchase and installation when claiming your tax credits.

Different types of improvements have specific requirements and credit limits, ranging from $50 to $500 or 10% of the cost, excluding installation fees, with a potential annual maximum of $3,200.

Primary residences like single-family homes, houseboats, mobile homes, cooperative apartments, condominium, and a manufactured home are eligible.

Qualified Upgrades

Qualified ENERGY STAR upgrades that can earn you valuable tax credits include:

  • Insulation and Air Sealing: Improve your home’s insulation or add sealing to stop leaks and drafts, enhancing overall energy efficiency.
  • Energy-Efficient Windows, Doors, and Skylights: Replace old, leaky windows, doors, or skylights with ENERGY STAR-certified models that reduce energy bills and increase comfort.
  • Heating, Ventilation, and Air Conditioning (HVAC) Systems: Upgrade to high-efficiency heating and cooling systems that not only keep your home comfortable but also lower energy costs.
  • Water Heaters: Install energy-efficient water heating systems that use less energy to heat water, offering long-term savings on your utility bills.
  • Roofing: Choose reflective roofing materials that can lower roof surface temperature, thereby reducing the amount of heat entering your home.
  • Home Energy Assessments: Before making upgrades, a professional energy assessment can identify where your home is losing energy and what improvements will make it more efficient.

Certification Requirements

The ENERGY STAR certification process requires a product to meet strict energy efficiency guidelines set by the EPA. Manufacturers must test their products in an EPA-recognized laboratory to demonstrate compliance with these specifications. Products that pass receive certification, indicating they are among the most energy-efficient in their categories.

Ensure you’re working with a reputable contractor who is knowledgeable about ENERGY STAR guidelines and can provide proper documentation for your installations.

Maximizing Tax Savings

To maximize tax savings through ENERGY STAR tax credits, prioritize upgrades with the highest credits and ensure all products are ENERGY STAR-certified. Bundle improvements within the same tax year to increase savings. Keep detailed records of purchases and installations for accurate claim filing. Finally, consult a tax professional to leverage all available credits and deductions.

Timing Considerations

Timing upgrades strategically around the tax year can significantly enhance tax benefits. Undertaking energy-efficient home improvements or purchasing qualifying products before the tax year ends allows homeowners to claim tax credits sooner, reducing the current year’s tax liability. This approach accelerates your financial return on investment, making it a smart financial strategy.

Documentation and Record-Keeping

Maintain precise records for tax credit claims by systematically saving receipts, contracts, and certification statements for energy-efficient upgrades. Categorize these documents by year and type of improvement. Digitally scan or photograph hard copies to prevent loss. Annually, consult the latest IRS rules to ensure compliance and maximize eligible credits.

Available Credits and Incentives

Federal tax credits for energy-efficient home upgrades are available through 2032, offering homeowners up to $3,200 annually with specific credits for certain products. For 2033 and 2034, the credit will reduce to 22%.

HVAC Systems

For 2023-2032, homeowners can claim a 30% tax credit for installing energy-efficient HVAC systems. This includes air source heat pumps  for up to $2,000 annually and central air conditioning systems for up to $1,200 annually.  Gas or oil high-efficiency furnaces can be claimed for up to $600 but must be ENERGY STAR certified.

Appliances and Electronics

Tax credits are also available for various ENERGY STAR-rated appliances and electronics, encouraging energy efficiency. For instance, homeowners can receive rebates and federal tax savings for installing qualified products like washing machines, dryers, and refrigerators. These incentives aim to reduce energy consumption and promote sustainability by exceeding minimum federal standards.

Renewable Energy Systems

The federal government offers a 30% tax credit for installing renewable energy systems like solar panels, fuel cells, small wind turbines, battery storage technology, and geothermal heat pumps.

Strategies to Maximize Federal Tax Savings

Focus on making the right home improvements to maximize federal tax savings.

  • Energy Audit: Begin with an energy audit to identify areas for enhancing energy efficiency. You are eligible to claim a 30% credit on the cost of a home energy audit, up to a maximum of $150,
  • Insulation: Upgrade your home insulation and get a 30% credit on the cost of insulation products, with a cap of $1,200.
  • Electrical Panel: Consider upgrading your electrical panel to accommodate solar panels or other renewable energy systems. You can claim up to a 30% credit on the cost, with a maximum of $1,000.
  • HVAC Upgrade: Install an ENERGY STAR-certified HVAC system for a 30% tax credit – up to $2,000 – through 2032 and lower your monthly energy bills.
  • Windows: Replace old, leaky windows with energy-efficient models for improved comfort, appearance, and additional tax savings. Claim up to $600 or 30% of the product cost for window upgrades within one taxable year.
  • Doors: Upgrade doors with low-emissivity glass for increased energy efficiency and a potential tax credit of up to $500.
  • Water Heaters: Upgrade to more efficient water heaters to reduce energy usage, increase property value, and contribute to sustainability efforts. Get 30% of the project costs, capped at $2,000, for installing a heat pump water heater.

Mix and match your home upgrades for an annual tax credit of $3200. Some credits are only available on existing, primary homes while others, such as renewable energy, can be used on new construction and second homes.

Claiming Your Credits

To claim Energy Star tax credits for energy-efficient home improvements or renewable energy installations, follow these steps:

  1. Determine Eligibility: Ensure that the energy-efficient products or systems you’ve installed are eligible for the tax credit. Eligible products typically include ENERGY STAR-certified windows, doors, HVAC systems, solar panels, and geothermal heat pumps. Check the ENERGY STAR website or the product manufacturer’s documentation for eligibility.
  2. Keep Records: Save all receipts and certifications from the product manufacturer or installer. You’ll need to provide proof of purchase and installation, including the date of installation and the cost of the product excluding labor.
  3. Obtain the Manufacturer’s Certification Statement: For certain products, you may need a Manufacturer’s Certification Statement as proof that the product qualifies for the tax credit. This can usually be obtained from the manufacturer’s website or by contacting them directly.
  4. Complete IRS Form 5695: Download and fill out Form 5695, “Residential Energy Credits,” to calculate your credit. This form is used to figure and claim your residential energy credits, including the Nonbusiness Energy Property Credit and the Residential Energy Efficient Property Credit.
    • Part I of Form 5695 is for the Residential Energy Efficient Property Credit (for solar, wind, geothermal, and fuel cell technology).
    • Part II is for the Nonbusiness Energy Property Credit (for other eligible improvements like windows, doors, and insulation).
  5. Attach Form 5695 to Your Tax Return: Once you’ve completed Form 5695, attach it to your federal tax return. The amount of credit you’re claiming will be entered on your 1040 form.
  6. File Your Tax Return: Submit your tax return by the filing deadline. You can file electronically or by mail. If filing electronically, make sure that the software supports Form 5695 and includes it in your return.
  7. Save Your Documentation: Even after you’ve filed your taxes, keep all documentation related to your energy-efficient improvements. This includes receipts, contracts, Manufacturer’s Certification Statements, and a copy of the completed IRS Form 5695. You may need these documents if the IRS has questions about your claim.

For more detailed instructions, you can refer to the official IRS guidelines on the IRS website and the ENERGY STAR website. Remember, tax laws and credits can change, so it’s always a good idea to consult with a tax professional if you have specific questions about your situation.

Staying Informed

To stay informed about ENERGY STAR tax credits and updates, regularly visit the ENERGY STAR and IRS websites. Subscribe to newsletters from energy efficiency organizations and consult with a tax professional annually.

Professional Advice

For personalized guidance on navigating tax credits for energy-efficient installations, consulting with a tax professional is highly recommended. For expert installation services or any questions about making your home more energy-efficient, reach out to Jacobs. Our experienced team can provide tailored solutions to meet your specific needs.

ENERGY STAR Installation in Portland

Leveraging ENERGY STAR tax credits for energy-efficient home improvements like HVAC installations, water heaters, and more, not only benefits the environment but your wallet too. Make the most of these tax credit opportunities by going with an expert like Jacobs Heating & Air Conditioning.  Since 1952, we have been committed to delivering quality, reliability, and satisfaction. Our experienced team is ready to provide expert installations that meet your energy efficiency goals. Don’t wait to save money and make a positive impact—reach out to Jacobs today for your energy-efficient home upgrades.

About the Author

Amanda Jacobs portrait

Amanda Jacobs, Internal Project Manager

Amanda Jacobs is an Internal Projects Manager and 3rd generation member of Jacobs Heating & Air Conditioning. She received her MBA from Seattle University and has worked for a leading HVAC training and consulting firm. When not talking HVAC on the Jacobs Blog, you can find her on the golf course or whipping up her famous vegan chili.