Updated FAQs were released to the public in Fact Sheet 2025-01 PDF, Jan. 17, 2025. This fact sheet contains all of the FAQs in one downloadable PDF.
How the credit limits work (updated Jan. 17, 2025)
Example 1. In one taxable year, a taxpayer purchases and installs the following: two exterior doors at a cost of $1,000 each, windows and skylights at a total cost of $2,200, and one central air conditioner at a cost of $5,000. All property installed meets the applicable energy efficiency and other requirements for qualifying for the credit.
First, 30% of each $1,000 door is $300, but the per door limit of $250 applies to reduce the maximum credit amount to $500 for the two doors.
Next, 30% of the $2,200 for windows and skylights is $660, but the $600 cap for all windows and skylights limits this credit amount to $600.
Finally, 30% of the $5,000 central air conditioner is $1,500, but the $600 per item limit for qualified energy property applies to limits this credit amount to $600.
Adding these credit amounts yields a sum of $1,700 ($500 + $600 + $600), but the overall cap of $1,200 limits the amount that the taxpayer may claim for this property to $1,200.
Example 2. For this example, assume all the same facts as in Example 1 above, except that instead of purchasing and installing a central air conditioner at a cost of $5,000, the taxpayer purchases and installs an electric heat pump at a cost of $5,000. The heat pump meets the applicable energy efficiency and other requirements for qualifying for the credit. Here, 30% of the taxpayer’s costs for the heat pump is $1,500. Since a heat pump is a type of qualified energy property not subject to the $600 per item cap or the $1,200 overall limit, the taxpayer can claim a credit of $1,500 for the cost of the heat pump.
Accordingly, the taxpayer’s total credit is $2,600 ($500 for the exterior doors + $600 for the windows and skylights + $1,500 for the heat pump).
Example 3. For this example, assume all the same facts as in Example 1 above, except that instead of purchasing and installing a central air conditioner at a cost of $5,000, the taxpayer purchases and installs an electric heat pump at a cost of $8,000. The heat pump meets the applicable energy efficiency and other requirements for qualifying for the credit.
Assume further that the taxpayer also spends $600 on home energy audits performed by a Qualified Home Energy Auditor. First, 30% of the $600 in home energy audits is $180, but the $150 cap for home energy audits limits this credit amount to $150. Adding the $150 for the home energy audit to the allowable credit amounts for the doors, windows, and skylights yields a sum of $1,250 ($1,100 ($500 for the exterior doors + $600 for the windows and skylights) + $150), but the overall cap of $1,200 limits the amount that the taxpayer may claim for this property to $1,200.
Next, 30% of the $8,000 heat pump is $2,400. Although the heat pump is not subject to a $600 cap or the overall $1,200 limit, it is subject to a separate $2,000 aggregate limit for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and biomass boilers. The taxpayer can claim a total credit of $3,200 ($1,200 for the doors, windows, skylights, and home energy audit + $2,000 for the heat pump).
Related
- Energy efficient home improvement: Qualifying expenditures and credit amount
- Energy efficient home improvement: Energy efficiency requirements
- Energy efficient home improvement: Qualifying residence
- Energy efficient home improvement: Labor costs
- Energy efficient home improvement: Timing of credits
- Energy efficient home improvement: PIN requirements
- Energy efficient home improvement: General questions
- Energy efficient home improvement: Examples - How the credit limits work
Previous updates to FAQs
- Fact Sheet 2024-15 PDF, April 17, 2024
- Fact Sheet 2022-40 PDF, Dec. 22, 2022