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Everything You Need to Know About § 25C in the Inflation Reduction Act

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The Inflation Reduction Act amended credits for energy efficient home improvements under § 25C, a section of the Internal Revenue Code. However, the IRA alters code § 25C a little, and there are a few things we think you should know.

  • The IRA increased the residential clean energy property credit through 2034
  • Technology that includes battery storage is now an eligible expenditure
  • Property placed in service between 2021 and 2033 apply

As of January 1st, 2023, eligible credit is equal to 30% of the sum of total amounts paid by taxpayers for some qualified purchases, with limitations put in place. These expenditures include: energy efficient improvements for your home, home energy audits, and residential energy property expenditures (does not apply to businesses).

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Your Brief Overview of the Residential Clean Energy Property Credit

This credit has been increased through 2034 to extend the period of time that taxpayers can earn up to 30% tax credits for residential energy efficient property. Keep in mind the word property, as it’s important.

Home improvements qualify for this credit, crediting you $150 for home energy audits, up to $500 between two exterior door purchases per year ($250 each), and $600 for new boilers, hot water heaters, or furnaces (propane and oil, specifically).

There is an Annual Limit to Keep in Mind

Your annual limit may not exceed $1,200. That still poses significant savings if you space out home improvements throughout the timeframe of 2023 to 2033. This is a combined total per year, tallying up between home improvements mentioned in the section above.

Credits Are Only to be Used for Primary Residence

If you own your home and make improvements that qualify under the Residential Clean Energy Property Credit, you’re in the clear. However, you cannot make these improvements to a second home or to a home that you own but lease out to a tenant. This may only be applied to your principal residence.

Labor Costs May be Covered by the Credit

Taxpayers may include the labor cost for onsite assembly and installation of property that falls under the Residential Clean Energy Property Credit, such as a boiler or air conditioner, for example. It cannot be used for insulation, exterior doors, or skylights. It must only be applied to home improvement systems. Taxpayers may include labor costs exclusively for onsite assembly, installation, and preparation for the new qualifying unit–this does not apply to any labor cost or time associated with removing an old furnace.

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