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

 

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. What type of residence is required for the credit? For example, is the credit available for a home rented by the taxpayer or for a second home? (updated Jan. 17, 2025)

A1. A taxpayer claiming the credit for exterior windows or skylights, exterior doors, and insulation materials or systems (including air sealing materials or systems) must have installed such property in a home located in the United States that is owned and used by the taxpayer as the taxpayer’s principal residence. Due to the home ownership requirement, a taxpayer who rents the home in which such property is installed would not be entitled to the credit. Due to the principal residence requirement, a taxpayer who installs such property in the taxpayer’s second home would not be entitled to the credit.

A taxpayer claiming the credit for electric or natural gas heat pump water heaters; electric or natural gas heat pumps; central air conditioners; natural gas, propane, or oil water heaters; natural gas, propane, or oil furnaces or hot water boilers; biomass stoves or boilers; oil furnaces or hot water boilers; and improvements to, or replacements of, panelboards, sub-panelboards, branch circuits, or feeders must have installed such property in a home located in the United States and used as a residence by the taxpayer. In this case, the taxpayer may rent the home in which such property is installed, and such property may be installed in the taxpayer’s second home.

In the case of a taxpayer claiming the credit for a home energy audit, the home must be located in the United States and be owned or used by the taxpayer as the taxpayer’s principal residence. A taxpayer may claim the credit for a home energy audit of a home the taxpayer rents. Due to the principal residence requirement, a taxpayer may not claim the credit for a home energy audit of the taxpayer’s second home.

The credit is never available for homes not used as a residence by the taxpayer. For example, landlords can never use the credit for homes they rent out but do not use as a residence themselves.

For more information about a taxpayer’s use of a home as a principal residence, see Treas. Reg. § 1.121-1(b)(2).

Q2. Can a taxpayer claim the credit for expenditures incurred for an existing home? What about a newly constructed home? (updated Jan. 17, 2025)

A2. 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, but not for a newly constructed home.

Q3. May a taxpayer claim the 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? (updated Jan. 17, 2025)

A3. It depends. If a taxpayer uses property solely for business purposes, the property will not qualify for the credit. A taxpayer who qualifies for the credit and whose use of the qualified property for business purposes is not more than 20% of the total use may claim the full credit. A taxpayer who otherwise qualifies for the credit, but whose use of the qualified property for business purposes exceeds 20%, 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.

Q4. How should an individual taxpayer residing in a co-op or condominium building determine that taxpayer’s proportionate share of expenditures for qualified property when the expenditures were paid by the co-op or condominium board or management association? (added Jan. 17, 2025)

A4. A taxpayer may rely on the relevant rules provided in the section 25C proposed regulations. The relevant rules are summarized below.

  • Co-ops: An individual tenant-stockholder in a cooperative housing corporation (as those terms are defined in section 216 of the Code) will be treated as having paid or incurred the taxpayer’s proportionate share (as defined in section 216(b)(3)) of any amounts paid or incurred by such corporation for qualified property. Tenant-stockholders that are not individuals cannot claim the credit.
    • Example. X, a cooperative housing corporation, has 10 tenant-stockholders who are all individuals. Each tenant-stockholder owns 1 share of stock. In taxable year 2024, X pays $2,000 for a new exterior door for the building and has no other expenditures eligible for the credit. Pursuant to the section 25C proposed regulations, each tenant-stockholder will be treated as having paid the tenant-stockholder's proportionate share of the expenditure for the exterior door. Under section 216(b)(3), the proportionate share is the proportion that the stock of the cooperative housing corporation owned by the tenant-stockholder is to the total outstanding stock of the corporation (including any stock held by the corporation). Each tenant-stockholder will be treated as having paid $200 ($2,000 x (1 share of stock per tenant-stockholder/10 total shares of stock)) for the exterior door. Assuming all other applicable requirements of section 25C are met, for taxable year 2024, each tenant-stockholder is entitled to a $60 ($200 x 0.3) credit for the exterior door.
  • Condos: A taxpayer who is a member of a condominium management association for a dwelling unit that the taxpayer owns will be treated as having paid or incurred the taxpayer’s proportionate share of any expenditures for such association for qualified property. Such proportionate share may be determined using any reasonable method by the condominium management association’s governing body. The governing body must maintain a consistent method for determining the proportionate share of association expenditures, and should maintain records to document such determinations.
    • Example. Y, a condominium, has 50 resident owners. In taxable year 2024, Y pays $2,000 for a new exterior door for the building and has no other expenditures eligible for the credit. The organizational documents for Y include a Declaration that lists each resident’s percentage interest in common elements based on the proportion of square footage of each dwelling unit to the total square footage of all dwelling units in the building. The Y Declaration shows that Z, an individual dwelling unit owner in Y, has a 10% interest in the common elements. Pursuant to the section 25C proposed regulations, the Y Board of Directors can determine that Z’s proportionate share of the expenditure for the exterior door is $200 ($2,000 x 0.1). Z will be treated as having paid $200 in taxable year 2024 for the exterior door for purposes of section 25C. Assuming all other applicable requirements of section 25C have been met, Z’s credit for taxable year 2024 for the exterior door will be $60 ($200 x 0.3).