Energy efficiency not only benefits the planet but also your wallet. Thanks to IRS Tax Code Section 25C, homeowners can claim a valuable tax credit for making certain energy-efficient updates to their primary residence. If you want to improve your home’s energy performance, understanding how this nonbusiness energy property credit works could save you hundreds, even thousands, of dollars. 

What Is Section 25C?

Section 25C of the Internal Revenue Code allows taxpayers to claim a tax credit equal to a portion of the expenses incurred for installing eligible home energy improvements to their existing home. The improvements must be made to a primary residence located in the United States. 

Originally established through the Energy Policy Act of 2005, this credit has been extended and modified several times, most recently by the Inflation Reduction Act of 2022, which significantly revamped it and renamed it the Energy Efficient Home Improvement Credit starting in 2023.

This credit covers purchase and installation costs, though eligibility for labor costs varies depending on the improvement. Subsidies and rebates may reduce the amount you can claim. 

Key Highlights of the Nonbusiness Energy Property Credit

Who Is Eligible?

To be eligible:

• You must be the owner of the home (renters and landlords are not eligible).
• The home must be your principal residence (rental and second homes do not qualify).
• The property must be located in the United States. 

Properties used exclusively for business are not eligible.

Credit Amount (As of 2023)

• The credit is 30% of the cost of eligible improvements, up to $1,2000 annually. Some specific improvements (like heat pumps and biomass stoves) may be eligible for a separate $2,000 credit. 
• There is no lifetime limit anymore, meaning you can claim the credit every year you make qualifying upgrades. 

What Improvements Qualify?

Eligible upgrades under Section 25C include:

Exterior Improvements:

• Energy-efficient windows, doors, and skylights.
• Insulation materials that meet IRS energy standards.

Systems and Equipment:

• Advanced central air conditioners.
• Natural gas, propane, or oil furnaces and hot water boilers.
• Electric or natural gas heat pumps and biomass fuel stoves.

Home Energy Audits

Starting in 2023, up to $150 of the cost of a home energy audit is also credit-eligible. 

All equipment and materials must meet ENERGY STAR® standards or other IRS efficiency criteria.

How to Claim the Credit

To claim the nonbusiness energy property credit:

• Save all receipts and manufacturer certification statements.
• File IRS Form 5695 with your tax return.

Note that the credit is nonrefundable, which means it can reduce your tax liability to zero, but it won’t result in a refund by itself.

Why It Matters

This is credit benefits homeowners looking to:

• Reduce their energy bills.
• Improve home comfort and resale value.
• Lower their carbon footprint.
• Offset renovation costs with tax incentives.

And with the annual reset, homeowners can plan multi-year upgrades to maximize their savings.

This credit also:

• Empowers homeowners to make energy-efficient upgrades.
• Contributes to a more sustainable future.
• Supports economic growth in related industries.
• Helps reduce stress on the electrical grid.

Save Energy and Money with Tax Section 25C

The Nonbusiness Energy Property Credit under IRS Section 25C allows homeowners to invest in energy-efficient improvements while reducing their tax burden. With updated limits and expanded eligibility under recent legislation, it’s now more accessible and beneficial than ever. Whether you want to replace windows, upgrade your HVAC system, or conduct a home energy audit, these improvements pay off not just in comfort and savings but also during tax season. 

Take advantage of this opportunity to enhance your home’s energy performance and financial health. And if you’re unsure about any part Tax Section 25C, consult a tax professional to ensure you make the most of these valuable incentives.