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Generating household electricity from renewable sources like solar power is one of the best ways to reduce your family’s reliance on the utility grid and save money on energy bills.
However, if your home isn’t energy efficient, you’ll never maximize your investment in solar panels, standby generators, or backup battery systems.
Energy vampires like
- Ineffective insulation
- Inefficient water and air heaters
- Poorly sealed or obsolete doors and windows
can cost you thousands of dollars each year by letting valuable energy go to waste.
Luckily, the Federal Government offers several programs to help people make their houses more energy efficient and incentives for investing in residential renewable power systems.
One of the most attractive tax breaks for homeowners and renters of existing residences is the (25C) Energy Efficient Home Improvement Credit.
But what exactly is the home energy tax credit?
And how do you apply?
Read on to find out.*
(Source: Energy.ca.gov)
What Is the Energy Efficient Home Improvement Credit?
The Energy Efficient Home Improvement Credit (25C) is a federal tax incentive administered by the IRS.
It allows US taxpayers to receive a 30% tax credit against their federal income tax liability for qualified expenses, including:
- Eligible energy efficiency improvements installed during the tax years 2023 through 2032
- Residential energy property purchases
- Home energy audits
The credit is capped at $3,200 per individual taxpayer per year.
Both homeowners and renters who make improvements to their main home are eligible for the credit.
According to the IRS, it can include:
- $1,200 for energy-efficient property costs and certain energy efficient home improvements, with limits on exterior doors ($250 per door and $500 total), exterior windows and skylights ($600) and home energy audits ($150)
- $2,000 per year for qualified heat pumps, water heaters, biomass stoves, or biomass boilers
The Energy Efficient Home Improvement Credit should not be confused with the 30% Federal Solar Credit, as they are separate programs with differing requirements.
Many US taxpayers are eligible for both programs in addition to other state, local, and private incentives.
Home Energy Audits
A home energy audit is a professional assessment of your household power consumption that details how to improve efficiency and safety and reduce your energy bills.
It’s possible to conduct a DIY home energy assessment yourself, but a professional auditor will have tools such as blower doors, moisture meters, and infrared cameras that can identify problem areas with greater accuracy.
The Energy Efficient Home Improvement Credit covers 30% of the cost of a professional audit up to a maximum of $150 per tax year.
Residential Energy Property
Numerous residential energy property and building improvement purchases are eligible for the Energy Efficient Home Improvement Credit.
Renewable power solutions like solar panels and small wind energy systems are covered by a different and potentially more generous federal program — the Residential Clean Energy Credit.
Residential energy property that can qualify for the Energy Efficient Home Improvement Credit includes:
- Central air conditioners
- Natural gas, propane, or oil water heaters
- Improvements to or replacements of panelboards, sub-panelboards, branch circuits, or feeders Heat pumps
- Biomass stoves
- Biomass boilers
- Electric or natural gas heat pump water heaters
- Electric or natural gas heat pumps
Eligibility for the credit for residential energy properties varies by system type, but most must meet the Consortium for Energy Efficiency (CEE) highest tier.
(Source: Energy Star)
Building Envelope Components
A building envelope consists of physical barriers that separate and protect the interior of your home from the exterior environment and elements.
You may be unfamiliar with the term, but common “building envelope” components include:
- Walls
- Ceilings
- Roofs
- Floors
- Doors
- Windows
One of the best ways to reduce energy consumption is to eliminate or mitigate inefficiencies in your home.
In addition to home energy audits and residential energy property, the Energy Efficient Home Improvement Credit also incentivizes renovations that prevent wasted power.
According to the National Society of Tax Professionals (NSTP):
The following energy efficient home improvements are eligible for the Energy Efficient Home Improvement Credit (§ 25C of the Internal Revenue Code (Code)):
Building envelope components satisfying the energy efficiency requirements:
- Exterior doors (30% of costs up to $250 per door, up to a total of $500);
- Exterior windows and skylights (30% of costs up to $600); and
- Insulation materials or systems and air sealing materials or systems (30% of costs).
- For a maximum total of $1,200 annually.
Electric or natural gas heat pump water heaters, electric or natural gas heat pumps, biomass stoves and biomass boilers have a separate aggregate yearly credit limit of $2,000. Thus, the maximum total yearly energy-efficient home improvement credit amount may be up to $3,200.
Because the credit is capped at $3,200 per tax year, it may make sense to carry out energy efficiency improvements gradually.
There’s no limit to how many times you can claim the credit in consecutive tax years (from 2023 to 2032), but you can’t carry over the cost of completed improvements once you hit the cap.
Who Qualifies for the Energy Tax Credit?
The Energy Efficient Home Improvement Credit is available to US federal income taxpayers making qualified improvements to their primary residence.
Both homeowners and renters can qualify for the Energy Efficient Tax Credit.
Only existing residences in the US are eligible — newly built homes do not qualify for this credit.
You must live on the premises for most of the year — secondary residences like vacation homes are ineligible.
Landlords and other property owners who don’t reside on the premises are not eligible for The Energy Efficient Home Improvement Credit, even if improvements they make would otherwise qualify.
The Federal Solar Tax Credit’s eligibility requirements are more flexible, so you may qualify for that program even if you don’t currently owe taxes or the Efficiency Credit doesn’t apply.
Which Home Upgrades Qualify for the Energy Efficient Home Improvement Credit?
According to Energy Star, the following upgrades are eligible for the Energy Efficient Home Improvement Credit from 1/1/2023 until 12/31/2032.
- Heat Pump Water Heaters
- Heat Pumps
- Biomass Stoves/Boilers
- Insulation
- Windows/Skylights
- Exterior Doors
- Central Air Conditioners
- Natural Gas, Oil, Propane Water Heaters
- Natural Gas, Oil, Propane Furnaces/Boilers
- Electric Panel Upgrades
- Home Energy Audits
What Is the Residential Clean Energy Credit?
The Residential Clean Energy Credit covers the purchase and installation costs of eligible renewable power and home battery systems, including:
- Solar panels and balance of system components for generating electricity using photovoltaic cells
- Solar thermal water heaters
- Home battery systems with over 3kWh of storage capacity (such as EcoFlow DELTA Pro Ultra)
- Small wind energy systems
- Geothermal heat pumps
- Fuel cell systems
Applying for all available incentives helps maximize your return on investment.
Is There a Tax Credit for Heat Pumps?
Yes. Depending on the type of heat pump you purchase, you may be eligible for the 25C Energy Efficient Home Improvement Credit and/or the Residential Clean Energy Credit.
Modern heat pumps are much more efficient at space heating and cooling than traditional HVAC systems.
The make, model, and type of heat pumps eligible for the Energy Efficient Home Improvement Credit vary.
According to Energy Star, the equipment must “meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency (CEE), which is in effect as of the beginning of the calendar year.”
If you’re purchasing a heat pump based on tax credit eligibility, it’s essential to confirm it meets all the qualifications first.
Electric or natural gas heat pumps and heat pump water heaters may qualify for the 25C credit, which covers 30% of purchase and installation costs (capped at $2,000 per tax year).
Geothermal heat pumps are currently the only type covered by the Residential Clean Energy Credit.
“Qualified geothermal heat pump property is any equipment that uses the ground or groundwater as a thermal energy source to heat your home or as a thermal energy sink to cool your home. To qualify for the credit, the geothermal heat pump property must meet the requirements of the Energy Star program that are in effect at the time of purchase.”
Depending on which state or locality you live in, you may qualify for additional incentives, including tax rebates for qualified purchases.
You can check on the status of home energy rebate programs at your location here.
Does a Home Generator Qualify for Energy Credit?
Conventional home standby or backup generators that burn fossil fuels do not qualify for either the Energy Efficient Home Improvement Credit or the Residential Clean Energy Credit.
However, solar generators such as EcoFlow’s DELTA Pro 3 or DELTA Pro Ultra qualify for a 30% credit against purchase and installation costs.
Aside from the solar charge capacity of the portable power station, there’s no limit on the number of solar panels that are eligible for the credit.
By taking advantage of all available government incentives, you can significantly reduce your solar payback period and start saving money on electricity bills.
How to Claim the Energy Efficient Home Improvement Credit
Claiming the Energy Efficient Home Improvement Credit is relatively straightforward.
Simply fill out and file IRS Form 5695 along with your federal income tax return and take the relevant deductions.
There are no additional IRS verification requirements for the Energy Efficient Home Improvement Credit or the Residential Clean Energy Credit, and you can apply for both on the same form.
However, it’s essential to maintain complete and accurate records of the purchase and installation for anything you claim.
As with any other deductions you take on your federal tax returns, you could be subject to substantial civil and criminal penalties for inaccurate or falsified claims.
Are Energy Tax Credits Refundable?
No. Unlike tax rebates — relatively rare in the United States — federal energy tax credits are non-refundable and can only be applied against existing or future income tax liabilities.
For example, if you haven’t paid income tax since 2018, you can’t receive a tax refund check for clean energy property or home improvements made in 2025.
The Energy Efficient Home Improvement Credit can only be taken in the tax year in which eligible renovations were made, or property was purchased.
If you invest in an eligible residential solar power or whole home backup battery system and the 30% tax credit you’re due from the Residential Clean Energy Credit program exceeds your income tax liability for the installation year, you can claim the balance of your credit in subsequent years.
Ultimately, the federal energy tax credits can only be applied to your income tax credit liability when you file your taxes…
You’re not going to get a check in the mail unless the credit results in a higher tax refund than you would have received already due to a reduction in your liability and an overpayment due to employer withholding or other reasons.
Can You Apply For the Energy Efficient Home Improvement Credit and the 30% Solar Tax Credit at the Same Time?
Yes. You can apply for — and receive — both tax credits in the same financial year.
Furthermore, there’s currently no limit on how many times you can apply for each credit in subsequent tax years until 2032.
The Residential Clean Energy Credit has no maximum cap on the number of times you can apply or on the total purchase and installation costs of eligible systems.
Frequently Asked Questions
The 25C Energy Efficient Home Improvement Credit is capped at $3,200 per tax year. It covers 30% of the purchase and installation costs of qualified energy property, like heat pumps (capped at $2,000 per tax year), and up to $1,200 of eligible home improvements, like more efficient windows and insulation. The credit is nonrefundable and can only be applied against personal federal income tax liability in the year the credit is claimed.
Yes. You must itemize qualified energy efficiency improvements on IRS form 5695 and attach it to your federal income tax return. No additional verification requirements exist when applying for the Energy Efficient Home Improvement Credit or the Residential Clean Energy Credit. However, it’s essential to ensure all purchases and installations meet the eligibility requirements and keep careful records in case of an IRS audit — just as you would for any other deductions you claim.
Final Thoughts
Making your home more energy efficient is one of the best ways to save money on heating and electricity bills.
Installing a solar generator like EcoFlow’s DELTA Pro 3 will help you save even more over the long term.
Thanks to government incentives, making your home more energy efficient and less reliant on the power grid is more affordable than ever.
EcoFlow has a wide selection of solar power and home battery solutions to meet your needs, from camping and road trips to whole-home generators.
Check out our selection today!
*Disclaimer: Before reading this guidance, please remember that tax matters can be highly individualized and complex. EcoFlow does not provide any assurances or guarantees concerning potential tax credits associated with our products. Any information in this guidance is solely for educational purposes and shall not be construed as legal advice. We recommend you rely on the expertise of tax professionals for accurate and personalized tax advice.