The Internal Revenue Service (IRS) published an updated frequently asked questions (FAQs) fact sheet on energy-efficient home improvement credits. The two credits available are the Energy Efficient Home Improvement Credit and the Residential Clean Energy Property Credit.

The Energy Efficient Home Improvement Credit encourages homeowners to make qualified energy efficient improvements. Qualified improvements include exterior doors, exterior windows and skylights, and insulation or air sealing materials. Exterior doors can qualify for a credit of $250 per door up to a total of $500 when more than one is installed. New windows and skylights qualify for 30% of costs up to $600. Insulation or air sealing materials are qualified for a credit of 30% of costs up to $1,200.

The total credit is generally limited to $1,200 for a tax year, with some items qualifying for an additional $2,000 credit. The $1,200 could also include a home energy audit with a value of up to $150.

The additional $2,000 credit is for electric or natural gas heat pump water heaters, heat pumps or biomass stoves or boilers. If a taxpayer qualifies for both the $1,200 credit and the $2,000 credit, the total Energy Efficient Home Improvement Credit could reach $3,200.

There are specific requirements for most of the credit items. Doors and skylights must meet Energy Star most efficient certification requirements. For the $2,000 credit, electric or natural gas heat pump water heaters, heat pumps or other such items must meet the highest efficiency level established by the Consortium for Energy Efficiency (CEE).

The taxpayer must install the energy efficient property in a home that is the taxpayer’s principal residence in the United States. The installation may also be claimed for improvements made if the owner is a tenant-stockholder in a cooperative housing corporation or a condominium where the taxpayer holds a proportionate share as specified by the management association. The Energy Efficient Home Improvement Credit is not refundable and may not be carried forward.

A new requirement in 2025 is that the items must be produced by a qualified manufacturer and there must be a product identification number (PIN). The PIN is provided by the manufacturer and must be included on the tax return. The PIN is a 17-character number assigned by the qualified manufacturer.

Taxpayers should keep records "sufficient to establish the amount of the credit on their tax returns."

The Residential Clean Energy Property Credit is a 30% credit for the installation of qualifying energy efficient property, with no lifetime credit limit. This may include solar panels, solar water heaters, qualified fuel cells, small wind energy units, geothermal heat pumps or battery storage.

U.S. homeowners that install these various energy production and storage items will qualify for a 30% credit. The geothermal heat pump must qualify under the Energy Star program. A qualified battery storage property must have a capacity of 3 kilowatt-hours or greater.

The Residential Clean Energy Property Credit may reduce the taxpayer’s tax liability and may be carried forward to future years. It is a non-refundable personal tax credit. The taxpayer may use IRS Form 5695, Residential Energy Credits to claim the credit for 2025.

Editor's Note: It is expected that there will be a comprehensive tax bill in 2025. Some of these energy credits may be modified or changed after January 1, 2026. Many homeowners will decide to take advantage of the Energy Efficient Home Improvement Credit or the Residential Clean Energy Property Credit in 2025.