100% Bonus Depreciation
There’s a new sheriff in town, and he’s ready to do away with home energy improvement tax credits. If his plan succeeds, homeowners have only until December 31, 2025 to complete their upgrades and qualify for valuable federal credits. The clock is ticking — and understanding these rules could mean the difference between saving thousands or missing out entirely.
What Are Home Energy Improvement Tax Credits?
These credits reward homeowners for making their properties more energy efficient. Whether you live in your home year-round or split your time between a main residence and a vacation home, qualifying upgrades can help you save on utilities and reduce your tax bill.
Under the current rules, you can earn up to $3,200 per year in tax credits for energy-efficient improvements like insulation, new windows, upgraded doors, and HVAC systems.
That might not sound like much, but if you’re in the 24% tax bracket, that’s like getting an almost $13,400 deduction — money back in your pocket for improvements you planned to make anyway.
$1,200 Annual Credit for Energy Improvements to Your Main Home
This annual credit covers two types of projects:
- Qualified energy efficiency improvements (e.g., windows, insulation, and exterior doors)
- Residential energy property expenditures (e.g., air conditioners, water heaters, and furnaces)
You can claim up to $1,200 each year for these upgrades — with no lifetime cap. That means you can spread your improvements over multiple years to maximize your benefit. However, pending tax reform could eliminate this credit for property placed in service after December 31, 2025, so don’t wait too long.
Eligible Building Envelope Improvements
To qualify, materials must meet Energy Star or International Energy Conservation Code standards and be expected to last at least five years. Examples include:
- Windows and skylights: 30% of cost, up to $600 total credit
- Exterior doors: 30% of cost, up to $250 per door ($500 total)
- Insulation and air sealing: 30% of cost, counted within the $1,200 annual cap
The credit is for your main home only (not new construction). You can still claim the full amount even if you use your home partly for business, as long as business use is under 20%.
Residential Energy Property Expenditures
These include new energy-efficient systems that heat water or control your home’s temperature. The credit equals 30% of the cost, up to $600 per item, for components such as:
- Central air conditioners
- Natural gas, propane, or oil furnaces and boilers
- Water heaters and panel upgrades (200 amps or more)
Equipment must meet the highest efficiency tier defined by the Consortium for Energy Efficiency (CEE).
Home Energy Audits
You can also claim a $150 credit (30% of the cost) for a certified home energy audit performed by a qualified professional. The audit identifies cost-effective improvements that help you save energy long-term.
$2,000 Annual Credit for Heat Pumps, Water Heaters, and Biomass Systems
In addition to the $1,200 annual credit, you can claim a separate $2,000 annual credit for installing certain energy-efficient systems in your main or secondary home. Qualifying installations include:
- Electric or natural gas heat pumps
- Heat pump water heaters
- Biomass stoves and boilers (wood or pellet-powered) with at least 75% thermal efficiency
This credit resets each year, so if the law remains unchanged, you could claim it again in 2026 for future upgrades.
Act Fast: The 2025 Deadline
The One Big Beautiful Bill Act (OBBBA) — now law — repeals these credits for property placed in service after December 31, 2025. That means this year could be your last chance to claim up to $3,200 in combined credits.
To qualify, make sure your energy-efficient improvements are installed (not just ordered) by the end of 2025.
How to Claim the Credits
To claim your home energy tax credits, file IRS Form 5695 (Residential Energy Credits) with your return for the year your upgrades are installed. Keep receipts, certifications, and serial numbers for all qualifying equipment in your records — you’ll need them if the IRS requests documentation.
These incentives won’t last forever. If you’ve been thinking about replacing your furnace, upgrading insulation, or installing a heat pump, now is the time to act. A few smart upgrades can save you thousands — both on your utility bills and your tax return.
Ken-Mar Tax helps homeowners, contractors, and realtors identify every deduction and credit available to them. Don’t miss out on the home energy improvement tax credits of 2025 — contact Ken-Mar Tax today for expert guidance on maximizing your savings before the deadline.
Small Business Tax Services
As an expert in small business tax services and tax consulting Ken-Mar Tax eats, sleeps and breathes small business tax strategies. Being an enrolled agent allows founder, Ken Weinberg, to represent you to the IRS - something only a CPA, tax attorney and Enrolled Agent can do. EAs are the only federally licensed tax practitioners who specialize in taxation and also have unlimited rights to represent taxpayers before the IRS. It also means he is continuously being updated on the new IRS tax codes and taking classes from the IRS that provide guidance on how to file returns so that they are not "flagged."
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