As 2025 begins, it’s a good time to revisit the Inflation Reduction Act, and specifically its Energy Efficient Home Improvement Federal Tax Credit (EEHI). Effective January 1, 2023 and rolling out across the country over the past couple of years, the EEHI is intended to help people make their homes more energy efficient by offering tax credits that make upgrades affordable, if not free.

The idea is to “green up” houses around the country, making them more energy efficient in the area of heating and cooling. It helps homeowners save on their energy bills — important now that many cities across the country are announcing energy price hikes for 2025.

It means new sales and installations for you… but only if homeowners are aware of the program and understand how to apply and participate.

Of course, as with anything governmental, there is a lot of confusion about the EEHI. Who qualifies for it? How does it work? How can people apply? How does it affect HVAC and plumbing pros? Is there anything new in 2025?

Here’s a primer in the Energy Efficient Home Improvement Federal Tax Credit, with much of this info coming directly from the IRS.

What is it?

The Energy Efficient Home Improvement Credit is a tax credit for homeowners who make qualified energy-efficient improvements to their homes after January 1, 2023, and before January 1, 2033.

How much is the credit?

The credit is up to $3,200 of qualified expenses. But, not surprising, this is confusing too. There is no lifetime dollar limit. The maximum credit people can claim each year is:

• $1,200 per year for energy efficient property costs and certain efficient home improvements.
• $2,000 per year for qualified heat pumps, water heaters, biomass stoves or biomass boilers.

So, if a homeowner puts in a new heat pump one year, they can claim the credit. Maybe the next year, they decide to install new exterior doors and skylights. They can claim it then, too.

However… it’s a little more complicated than that. Those numbers are the yearly limit, but the credit covers no more than 30% of the costs. So, say your homeowner wants to install a new heat pump water heater. Here’s the cost breakdown:

New heat pump: $2,250

Labor and install: $750

Total cost: $3,000

Tax credit (30%): $900

What are “qualified expenses”?

Qualified expenses. You’ll see that term a lot on the IRS website and forms. What, exactly, qualifies for this program? Across the board, the home improvements must meet current energy efficiency standards, must be new, not used, and must have a lifespan of at least five years.

Here’s a list, directly from the IRS:

• Exterior doors
• Exterior windows and skylights
• Insulation and air sealing materials or systems
• Home energy audits
• Central air conditioners
• Natural gas, propane or oil water heaters
• Natural gas, propane or oil furnaces and hot water boilers
• Electric or natural gas heat pumps
• Electric or natural gas heat pump water heaters
• Biomass stoves and boilers
  

Who qualifies for the credit?

Owners of existing homes located in the U.S. That means this does NOT apply to new construction, unless the homeowner is adding on to their home and including a new furnace room or something like that.

The home must be their primary residence. Sorry, landlords.

The home must not be primarily used for business. Don’t worry about this if you work remotely out of your home.  This is intended more for homes that are converted into a business, like a salon or retail shop. However, there are caveats here, too. If you use your home for business up to 20% of the time, you can claim the full credit.

What if the homeowner doesn’t owe federal taxes that year?

This is a fine-print detail that many people don’t understand. If the homeowner doesn’t owe any taxes, this rebate is a no-go. According to the IRS: “You can’t get back more on the credit than you owe in taxes, and you can’t apply any excess credit to future tax years.” In other words, the credit lowers your tax bill, but you won’t get any excess back as a tax refund.

When can they start claiming the credit?

This has been a source of confusion ever since this program was announced. It is being rolled out state by state, and each state’s status can change daily.

This Home Energy Rebates Progress Tracker, developed by the Department of Energy, is a handy took that homeowners can use to check whether or not the rebates are active in their state.

Is there anything new in 2025?

Yes! And here’s where it involves you. New this year, each energy-efficient unit the homeowner is claiming needs to be manufactured by a qualified manufacturer. The homeowner needs to include the PIN for the item on their tax return in order to claim the credit.

In short, it means they must purchase units from a reputable, qualified manufacturer, like the incredible companies we deal with at Goodin.

Those manufacturers need to register as a qualified manufacturer with the IRS and assign a qualified product identification number (PIN) to each item.

We get it, this can be confusing. Our friends at RUUD have put together a helpful page on federal incentives that will give you more information, including handy info sheets from the IRS. Or visit https://www.irs.gov/credits-deductions/home-energy-tax-credits