Let’s face it, with the new tax law changes for this tax season, there’s a higher possibility that you might be getting a smaller refund or bigger bills. According to the IRS, taxpayers should brace themselves for smaller refunds because the federal government did not deliver any stimulus payment in 2022. If you care about reducing your carbon footprint, the tax credit for energy-efficient windows might just be the big tax break you need this year.
Since there are lesser tax breaks this year, it’s important to take tax advantage of any opportunity you get. Replacing old windows, skylights, and doors is one unique way to save on energy and tax money. From a lifetime warranty to adding value to your home, switching to energy efficient window is an excellent investment you wouldn’t want to miss. Read along to discover how you can maximize this phenomenal tax break.
How Do Tax Credits Work?
The main aim of tax credits is to reduce the amount of income tax you owe. When you pay your tax, you get the full amount of tax credit you were promised. So, for example, if you have a tax credit of $2000, you would owe $2,000 less in your income tax.
What Is The Tax Credit For Energy-Efficient Windows?
The Inflation reduction Act (IRA) of 2022 is a huge relief in times of tax credit scarcity like this. The IRA of 2022 provides federal tax credits and deductions that empower and encourages climate change enthusiasts to make their homes more energy efficient. The effect of this would help reduce energy costs as well as energy demand. But, most significantly, it would ease the transition to cleaner energy sources.
The energy-efficient credit, previously known as the “Nonbusiness Energy Property Credit,” is available to homeowners that install windows, doors, insulation, and other energy-efficient home improvement equipment. The IRA extends and increases the benefits of the Energy Efficient Home Improvement Credit (EEHIC), which also includes a tax credit for energy-efficient.
Why Are Windows Included In The Energy-Efficient Home Improvement Credit?
The EEHIC is an incentive for environmentally friendly home improvements under the Inflation Reduction Act. The main goal of this incentive is to reduce energy use. For example, highly energy-efficient windows can help to significantly reduce the load on your air conditioning systems and furnace, resulting in lower energy bills.
How Much Tax Credit Can I Get?
For windows installed in 2022, homeowners are allowed 10% of the cost of a new energy-efficient window. However, starting in the tax year 2023, homeowners can now claim an energy tax credit of 30% of the price of new windows, up to a maximum of $600.
| EQUIPMENT TYPE | TAX CREDIT AVAILABLE FOR 2022 TAX YEAR | UPDATED TAX CREDIT AVAILABLE FOR 2023-2032 TAX YEARS |
| Windows, including skylights | 10% of cost | 30% of the cost, up to $600 |
| Exterior doors | 10% of cost | 30% of the cost, up to $500 for doors (up to $250 each) |
| Home Energy Audits | N/A | 30% of the cost, up to $150 |
Are There Any Eligibility Criteria?
There are a couple of eligibility criteria you should know when claiming the energy-efficient window tax credit for 2022 and 2023. Here they are:
- To benefit from the energy-efficient window credit, the equipment and materials used for the upgrade must meet the standard and requirements dictated by the department of energy.
- Your window upgrade must also be certified to be a qualified energy-efficient improvement. The tax credit only covers the cost of the product and does not include the installation costs.
- Your energy-efficient window must be Energy Star certified
- The tax credit also has a $500 total maximum lifetime tax credit for all improvements, including many other eligible items in Section 25C of the Internal Revenue Code
- The tax credit only covers 10% of the amount you paid up to the following maximums:
- $200 total maximum tax credits for qualifying skylights and windows.
- $500 total maximum tax credits for all kinds of qualifying improvements for skylights, windows, and other improvements. If you purchase a combination of skylights, doors, and windows, the total maximum of credits you are eligible for is $500, of which only $200 is allowable for skylights and windows.
- The energy-efficient window tax credit is an extension of the 26 U.S.C. §25C tax credit, meaning that all past federal tax credits are a lifetime maximum credit. If you have already claimed the maximum applicable tax credits as a homeowner under 26 U.S.C. §25C in the past tax years, you would no longer be eligible for this new tax credit.
- For 2023, there annual limit for this tax credit has been pegged at $600 for new windows without a lifetime limit. This means that if you installed some of your windows in 2023 and others in 2024, you are eligible to take the credit for both tax years.
When Should I File My Claim?
For energy-efficient windows installed in 2022, you can claim your credit on your 2022 tax return (filed in 2023)
For energy-efficient windows installed in 2023, you can claim your credits on your 2023 tax return (filed in 2024).
Will I Have To Replace All The Windows And Skylights To Qualify For The Tax Credit?
No. You can choose to replace only a few of your windows and skylights and still qualify for the tax credit. The most important thing is to ensure that they are ENERGY STAR certified.
Is The Tax Credit Only For Window Replacements?
No, installing a new window where there wasn’t one initially can also qualify you for the tax credit.
What Steps Do I Have To Follow To Apply For This Credit?
- The key step is to ensure that you’ve saved a copy of the Manufacturer’s Certification Statement in your records.
- Submit your 2022 tax return and file Form 5695
- Work with a tax expert to maximize your tax credits.
Takeaway
When it comes to saving tax money, it’s always all about strategies and planning. Every tax credit counts. And every help from your tax expert counts. If you need a tax strategy expert to help you maximize your tax credits legally and save more tax money, reach out to us at Tax Goddess, and we’ll gladly help you get the tax reduction you deserve.
