Expanded Tax Credits for Home Improvements

Planning home improvements for 2024? Exciting news! Newly expanded tax credits can significantly enhance the benefits for individual homeowners. Plus, you may even qualify for these credits on projects completed in 2023.

Recent changes in tax laws have broadened the tax credits for residential energy-efficient and clean energy home improvements. The updated law eliminates the old lifetime credit of $500 and introduces annual limits. While the credits are nonrefundable, any excess credits can be carried forward to future tax years. There are no income limits for these credits, so all taxpayers qualify. 

Boost Your Wallet with Energy-Efficient Upgrades

The first category of tax credits pertains to energy-efficient home improvements to your principal residence. You can mix and match various credits up to a maximum of $1,200 per year. The credit equals 30% of qualified amounts paid, up to the per-item maximum, including:

• $150 maximum for home energy audits,
• $250 for each exterior door, limited to $500 annually,
• $600 for exterior windows, including skylights, central air conditioner, water heater (natural gas, propane, or oil), furnace or hot water boiler (natural gas, propane, or oil), and electrical panel components to support the new improvements, and
• $1,200 for insulation and air sealing materials or systems.

Additionally, you can receive a $2,000 credit for electric or natural gas heat pumps and water heaters, as well as biomass stoves and boilers.

Strategic Tax Planning

Strategically spreading your installations over multiple years can maximize your tax savings by taking advantage of the annual limits. For example, in 2024, you could replace your water heater, if needed, upgrade your electrical panel to accommodate the new water heater, and replace your windows for a potential $3,200 credit. In the following year, you could replace your heat pump and attic insulation to potentially utilize another $3,200 credit. Improvements must be made to your existing principal residence.

Go Green and Reap the Rewards

Beyond energy efficiency, a second category of credits awaits for qualified clean energy installations. Enjoy a generous 30% credit with no annual or lifetime limit (except for fuel cell property) on expenses for:

• Solar panels
• Solar water heaters
• Fuel cell property (annual limit & principal residence only)
• Small wind turbines (residential)
• Geothermal heat pump

• Battery storage technology

Fuel cell property is limited to $500 for each half-kilowatt of capacity. These tax credits may include installation costs. Rentals do not qualify for the credits. Specific requirements apply to each type of qualifying property. (Residential Clean Energy Credit | Internal Revenue Service, 2023)

Seek Professional Assistance

The specific application of tax law depends on each taxpayer’s situation. Consulting a tax professional to strategically apply the rules to your specific circumstances can help ensure that you maximize the tax savings available to you. If you are a client of Bluerock, we are glad to assist you in planning your home improvements to maximize the credits available to you.

Julie Price, CPA

Tax Director

TaxPros | Internal Revenue Service. (2023, December 8). https://www.irs.gov/downloads/taxpros

Residential Clean Energy Credit | Internal Revenue Service. (2023, August 28). https://www.irs.gov/credits-deductions/residential-clean-energy-credit

Biomass Stoves/Boilers Tax Credit. (n.d.). ENERGY STAR. Retrieved February 1, 2024, from https://www.energystar.gov/about/federal_tax_credits/biomass_stoves

Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.