Industry News

U.S. revises, expands tax credits for energy-efficient home improvements

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Recently enacted tax credits for energy-saving building products are expected to boost the repair and remodeling business sector by $12 billion per year, or 2.5% on the industry’s $490 billion volume, according to an analysis by John Burns Research and Consulting.

Researchers at Burns believe the potential boost could exceed $12 billion as awareness of the credits increases. Surveys indicate the majority of households are not familiar with the potential credits. When homeowners and single-family renters with household income of $50K+ were asked if they were familiar with the tax credits and deductions for investing in residential clean energy and efficiency covered by the Inflation Reduction Act, 52% of respondents said they were not.

The anticipated uplift is due to the first major change to federal energy efficiency tax credits available to households in over a decade. Those changes are expected to stimulate demand for remodeling projects that add energy efficiency upgrades to homes.

Eligible products covered by the Inflation Reduction Act of 2022 range from heat pumps to water heaters, insultation/air sealing, windows/skylights, and exterior doors. Roofing is not eligible. Analysts at Burns project HVAC will account for nearly half (46%) of tax credit spending.

Among the changes highlighted by researchers at the Burns firm were:

  • A substantial increase in the cap on qualifying properties, from a lifetime cap of $500 previously to a $1,200 per year tax credit.
  • Annual limits, rather than lifetime. “Savvy households can spread qualifying home improvement spending over a 10-year period, receiving up to $12,000 back in taxes, compared to $500 previously,” wrote Matt Saunders and Elizabeth La Jeunesse, researchers in the firm’s building products division.

The new federal income tax credits for homeowners who made energy efficient home upgrades are available through 2032. In addition to the products noted above, the credits cover electrical panel upgrades and home energy audits.

Additionally, homeowners can take advantage of the modified and extended Residential Clean Energy Credit. It provides a 30% income tax credit for clean energy equipment such as rooftop solar, wind energy, geothermal heat pumps and battery storage through 2032. The amount drops to 26% for 2033 and 22% for 2034.

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