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ENERGY EFFICIENT HOME IMPROVEMENT CREDIT

(Previously Called Nonbusiness Energy Property Credit)

The Inflation Reduction Act of 2022 includes new energy credits which replace the Non-Business Energy Property Credit which expired on 12/31/22.

Prior Law-- The nonbusiness energy property credit was for energy efficient improvements made to the principal residence of the taxpayer. The credit did not apply for new construction.

New Law-- The new law renames the Nonbusiness Energy Property Credit as the “Energy Efficient Home Improvement Credit,” and extends the credit through the end of the 2032 tax year. However, the amendments made to IRC section 25C apply to property placed in service after December 31, 2022 (with the exception of certain identification number requirements that do not apply until after 2024).

The new law modifies the credit to equal 30% of the sum of:

1. The amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during the year,
2. The amount of the residential energy property expenditures paid or incurred by the taxpayer during the year, and
3. The amount paid or incurred by the taxpayer during the year for home energy audits.

The lifetime limitation under the old rules, are replaced with the following annual limitations:

1. In general, the combined credit for all energy efficient home improvements is limited to $1,200 per year, except for (5) below.
2. The credit for residential energy property expenditures is limited to $600 per year.
3. The credit for windows is limited to $600 in the aggregate for all exterior windows and skylights.
4. The credit for doors is limited to $250 per year for any exterior door, and $500 in the aggregate for all exterior doors.
5. Notwithstanding paragraphs (1) and (2) above, the credit allowed for heat pumps and heat pump water heaters, biomass stoves and boilers is limited to $2,000 per year.
6. The credit for energy audits is limited to $150 per year.

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