Frequently asked questions about energy efficient home improvements and residential clean energy property credits – Energy Efficient Home Improvement Credit - General questions

 

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.

Q1. Will a taxpayer qualify for the credit if the property installed has been used by another individual? (updated Jan. 17, 2025)

A1. No. Used property is not eligible for the credit.

Q2. Is the credit refundable or nonrefundable? (updated Jan. 17, 2025)

A2. The credit is a nonrefundable personal tax credit. A taxpayer claiming a nonrefundable credit can only use it to decrease or eliminate tax liability. A taxpayer will not receive a tax refund for any amount of the credit that exceeds the taxpayer’s tax liability for the year.

Q3. Is a taxpayer who is subject to the alternative minimum tax (AMT) eligible to claim the credit? (updated Jan. 17, 2025)

A3. Yes. A taxpayer who is subject to the AMT is eligible to claim the credit and may offset the AMT with the credit.

Q4. What happens to the credit if a government or a public utility provides a subsidy (for example, an incentive, grant, or rebate) to a taxpayer to purchase or install qualifying property? (updated Jan. 17, 2025)

A4. The answer depends on the facts that apply to each taxpayer.

  • Public utility. Generally, if a public utility provides (directly or indirectly) a subsidy to a customer for the purchase or installation of any energy conservation measure, the value of the subsidy is not included in the customer’s gross income. A taxpayer may not claim a credit for the amount of the subsidy that is used to purchase or install qualifying property. This rule applies whether a third-party contractor receives a subsidy on behalf of the taxpayer, or the taxpayer receives the subsidy directly. Payments from public utilities to compensate taxpayers for excess generated electricity delivered to the utility’s electrical grid (for example, net metering credits) are not subsidies for installing qualifying property and do not affect taxpayers, credit qualification or amounts.
  • Rebates. Rebates generally represent a reduction in the purchase price or cost of property, so the tax credit amount must be reduced by the amount of the rebate. In general, rebates are nontaxable purchase price reductions if they are based on or related to the cost of the property, received from someone having a reasonable connection to the sale of the property (for example, the manufacturer, distributor, or seller/installer), and do not represent payment or compensation for services provided by the taxpayer. The IRS will treat as rebates amounts paid with funds from the Department of Energy's "Home Energy Rebate Programs" under sections 50121 and 50122 of the IRA for the purchase of energy efficient property and improvements. See Announcement 2024-19. Additional information on coordinating home energy rebates with the energy-efficient home improvement credit can be found on the U.S. Department of the Treasury page.
  • State energy-efficiency incentives. A state may provide incentives to encourage taxpayers to purchase property that also qualifies for the credit. Generally, a taxpayer is not required to reduce the purchase price or cost of property acquired with a governmental energy-efficiency incentive unless that incentive qualifies as a rebate under federal income tax law. While many states label their energy-efficiency incentives as “rebates” that reduce the purchase price, these incentives may not qualify as rebates under federal income tax law, and the amount of the incentive could be included in the taxpayer’s gross income for federal income tax purposes.

Q5. What are the requirements for a home energy audit to qualify for the credit? (updated Jan. 17, 2025)

A5. A home energy audit is an inspection and written report for a dwelling unit located in the United States and owned or used by the taxpayer as the taxpayer’s principal residence (within the meaning of section 121 of the Code) that:

  1. identifies the most significant and cost-effective energy efficiency improvements for such dwelling unit, including an estimate of the energy and cost savings for each such improvement, and
  2.  is conducted and prepared by a qualified home energy auditor that meets the certification or other requirements specified in regulations or other guidance.

The written report must be prepared and signed by a qualified home energy auditor and include:

  • The qualified home energy auditor’s name and relevant employer identification number (EIN) or other type of appropriate taxpayer identifying number in lieu of an EIN,
  • An attestation that the qualified home energy auditor is certified by a qualified certification program, and
  • The name of such qualified certification program.

See Notice 2023-59 for requirements related to home energy audits. Please visit the U.S. Department of Energy page for the list of qualified certification programs.

Q6. How does a taxpayer claim the credit? (added Jan. 17, 2025)

A6. Use IRS Form 5695, Residential Energy Credits and file it with your federal income tax return for the year the credit is claimed.

Q7. What kind of records does a taxpayer have to keep for the credit, and for how long? (added Jan. 17, 2025)

A7. Taxpayers are generally required to keep records sufficient to establish the amount of the credit on their tax returns and are generally required to keep such records for as long as their contents may become material in the administration of any internal revenue law. For example, with respect to the basis reduction required by section 25C(g), taxpayers must keep records for as long as their basis in a dwelling unit is relevant in determining income tax. See Topic no. 305, Recordkeeping, on IRS.gov, for more general recordkeeping information.

Q8. Can taxpayers include financing costs such as interest payments in determining the amount of the credit? (added Jan. 17, 2025)

A8. No. Financing costs such as interest are not eligible expenditures for purposes of the credit. Other miscellaneous costs, such as origination fees or amounts paid for an extended warranty are also ineligible for the credit.