New Tax Breaks For 2023 Home Upgrades

Homeownership has a lot of perks including building equity and snagging some of the best homeowner tax credits and deductions. In 2023, the federal government created even more tax deductions for homeowners through the Inflation Reduction Act, which adds some additional coverage for improvements that make homes energy efficient.

Through the nonrefundable Energy Efficient Home Improvement CreditResidential Clean Energy Credit, and High-Efficiency Electric Home Rebate Program, taxpayers who make qualified improvements to their houses to improve energy efficiency can get substantial tax breaks. What are the details and how can you verify which improvements will get you these savings?

Disclaimer: This blog is for informational purposes only but not a complete guide. Please consult a tax professional for the most accurate and up-to-date information regarding tax credits.

2023 Home Improvement Tax Breaks

If you have been on the fence about getting a new HVAC or switching from gas to electric appliances, new federal tax credits can help knock hundreds to thousands of dollars off your home improvement bill. These new tax credits replace the Non-Business Energy Property Tax Credits.

Energy Efficient Home Improvement Tax Credit:

Homeowners can get up to $3,200 a year through this program that started on January 1, 2023. It will run until December 31, 2032, so it can be helpful if you plan to remodel or install energy-saving upgrades in the next ten years. These home renovations must be made in your primary residence. It doesn’t apply to rentals or new construction homes. The total credits received will be based on a variety of factors, like yearly household income and program type. Examples of claim limits include:

  1. HVAC heat pump for heating and air conditioning: Up to 30% of costs, capping at $2,000.
  2. Heat pump water heater: Up to 30% of costs, capping at $2,000.
  3. Biomass Stoves and Boilers: Up to $2,000.
  4. Home Energy Audit: Up to $150.
  5. New Exterior Door: Up to $250 each or $500 for all exterior doors.
  6. New Exterior Windows and Skylights: Up to $600.
  7. New Insulation: Up to $1,200.
  8. Upgraded Electrical Panel: Up to $1,200.

Residential Clean Energy Credit

This tax break allows homeowners to claim up to 30% of the costs of new, qualified clean energy improvements that happen between the years 2022 through 2033. This credit also applies to primary residences. Qualified home repairs and upgrades include:

  1. Battery Storage Technology.
  2. Solar Panels.
  3. Solar Water Heaters.
  4. Small Wind Turbines.
  5. Geothermal Heat Pumps.
  6. Fuel Cells.
  7. New Roofs that meet energy efficiency standards like metal and asphalt with cooling granules.

High-Efficiency Electric Home Rebate Program (HEEHRA)

According to the most recent information, the funding for this program exists but individual states have much to work out still. For now, expert sources say the funding should be available in early 2024. It is up to each state to determine if these rebates will be retroactive for projects completed in 2023. Under the program’s guidelines, families that earn 80% or below their local median income can get the full rebate for energy-efficient upgrades to electric systems like heat pumps. Families that earn between 80% and 150% of their area’s median income can get half of the following maximum rebates:

  1. Heat Pump HVAC: $8,000.
  2. Qualifying Hot Water Heater: $1,750.
  3. Electric Stove/Cooktop/Range/Oven: $840.
  4. Qualifying Clothes Dryer: $840.
  5. Upgraded Breaker Box: $4,000.
  6. Upgraded Electrical Wiring: $2,500.
  7. Upgraded Insulation & Ventilation: $1,600. 

If you have more questions about the specifics of tax credit limits, this list of frequently asked questions about the new tax credits. This HEEHRA Fact Sheet is also helpful in breaking down what to expect when the rebates do become available to the general public.

Can you Combine HEEHRA and IRS Tax Credits?

Yes, you can combine the rebates from HEERA with IRS tax credits. The tax credits through the IRS and the rebates are two different financial incentives that don’t interfere with each other. If you have plans to improve your home, check with your state to see if HEEHRA is available, and speak with a tax professional to be sure you can claim the financial perks before you commit to a project. If you pick the right project and replacement upgrade, you can end up getting the entire cost of it covered if you meet income qualifications!

What About Residents of Rental Properties?

While residents of rental properties can get some awesome renter tax breaks, most of the credits and rebates in this article are for homeowners. However, there are some exceptions that can still save renters money. For instance, HEEHRA can give renters discounts on portable appliances like induction cooktops and window unit heat pumps. Renters can also get some tax credits if their rent includes property taxes. For more details, speak with your tax pro!

Home Improvement Tax Credits for the 2023 Tax Year

As we near the second half of the year, it feels like tax return paperwork collection time has snuck upon us. Being able to claim home improvement projects on taxes can improve the quality of your life while also raising the value of your home. For the best tax refund potential, consult an experienced CPA who is familiar with federal and state tax laws.