Frequently asked questions about energy efficient home improvements and residential clean energy property credits - Qualifying residence

Updated FAQs were released to the public in Fact Sheet 2024-15 PDF, April 17, 2024.

Q1. What type of residence qualifies for these credits? For example, are the credits available for improvements made to a second home or to a home rented by the taxpayer? (added December 22, 2022)

A1. The credits are available only for certain improvements made to second homes, and the credits are never available when the improvements are made to homes not used as a residence by the taxpayer. For example, landlords can never use these credits for improvements made to any homes they rent out but do not use as a residence themselves. However, if a taxpayer is renting a home as their principal residence and makes eligible improvements, a tax credit may be available to such tenant.

• For the Energy Efficient Home Improvement Credit, the following requirements apply:
  • exterior doors, windows and skylights, insulation materials or systems, and air sealing materials or systems: the home must be located in the United States and must be owned and used by the taxpayer as the taxpayer's principal residence ^[1];
  • central air conditioners; natural gas, propane, or oil water heaters; natural gas, propane or oil furnaces or hot water boilers; electric or natural gas heat pumps; electric or natural gas heat pump water heaters; biomass stoves or biomass boilers; and improvements to panelboards, sub-panelboards, branch circuits, or feeders: the home must be located in the United States and used as a residence by the taxpayer (includes renters); and
  • home energy audits: the home must be located in the United States and owned or used by the taxpayer as the taxpayer's principal residence (includes renters).
     
• For the Residential Clean Energy Property Credit, the following requirements apply:
  • solar water heating property expenditures, solar electric property expenditure, small wind energy property expenditures, geothermal heat pump property expenditures, and battery storage technology expenditures: the home must be located in the United States and used as a residence by the taxpayer (includes renters); and
  • fuel cell property expenditures: the home must be located in the United States and used as a principal residence by the taxpayer (includes renters).

Q2. Can a taxpayer claim the credits for expenditures incurred for an existing home? What about a newly constructed home? (added December 22, 2022)

A2. The rules vary by credit.

• Under the Energy Efficient Home Improvement Credit: a taxpayer can claim the credit only for qualifying expenditures incurred for an existing home or for an addition to or renovation of an existing home, and not for a newly constructed home.
• Under the Residential Clean Energy Property Credit: a taxpayer can claim the credit for qualifying expenditures incurred for either an existing home or a newly constructed home.

Q3. May a taxpayer claim a credit if the qualified property is also used for business purposes, such as in a dwelling unit in which the taxpayer also conducts a business? (added December 22, 2022)

A3. For both credits, if a taxpayer uses property solely for business purposes, the property will not qualify for the credit. A taxpayer who qualifies for the credits and whose use of the qualified property for business purposes is not more than 20 percent may claim the full credit. For a taxpayer who otherwise qualifies for the credits, but whose use of the qualified property for business purposes exceeds 20 percent, the taxpayer must calculate the amount of credit by including only that portion of the expenditures for the property that are properly allocable to use for nonbusiness purposes.

^[1] The principal residence of a taxpayer is determined by taking into account all the facts and circumstances, such as their place of employment and mailing address for bills and correspondence, but ordinarily will be the property where the taxpayer spends the majority of their time. Treas. Reg. § 1.121-1(b).