The IRS updated frequently asked questions about the Energy Efficient Home Improvement Credit and the Residential Clean Energy Property Credit in Fact Sheet 2025-01 on Jan. 17.
These FAQs supersede earlier FAQs that were posted in Fact Sheet 2024-15 last April. The updates to the FAQs contain substantial changes pertaining to each tax credit, the IRS said.
The Inflation Reduction Act of 2022 amended the Energy Efficient Home Improvement Credit under Section 25C of the Internal Revenue Code and the Residential Clean Energy Property Credit under Section 25D of the tax code.
“These FAQs provide details on the Inflation Reduction Act’s changes to these tax credits, information on eligible expenditures, and examples of how the credit limitations work,” the IRS says in the fact sheet. “In this update to the FAQs, questions have now been separated by code section.”
Through Dec. 31, 2022, the Energy Efficient Home Improvement Credit had a lifetime credit limit of $500. As amended by the Inflation Reduction Act, for years after 2022, the credit is increased, with an annual credit of generally up to $1,200 (per taxpayer per taxable year), but with no lifetime credit limit. Beginning Jan. 1, 2023, the amount of the credit is equal to 30% of the sum of amounts paid by the taxpayer during the taxable year for:
- Qualified energy efficiency improvements installed during the taxable year;
- Residential energy property expenditures; and
- Home energy audits.
There are limits on the allowable annual credit and on the amount of credit for certain types of expenditures, which are explained in Q1/A1 and Q2/A2 in the section of the fact sheet titled “Qualifying expenditures and credit amount.” The credit is allowed for qualifying property placed in service on or after Jan. 1, 2023, and before Jan. 1, 2033.
The Residential Clean Energy Property Credit is a 30% credit for certain qualified expenditures made by a taxpayer for residential energy efficient property, with no lifetime credit limit. The Inflation Reduction Act extended the Residential Clean Energy Property Credit through 2034, modified the applicable credit percentage rates, and added qualified battery storage technology as an eligible expenditure. The credit applies to property placed in service after Dec. 31, 2021, and before Jan. 1, 2033. The credit percentage rate phases down to 26% for property placed in service in 2033 and 22% for property placed in service in 2034. No credit is available for property placed in service after Dec. 31, 2034.
More information about reliance is available.
Thanks for reading CPA Practice Advisor!
Subscribe Already registered? Log In
Need more information? Read the FAQs
