The energy-efficient home improvement credit is an incentive aimed at encouraging homeowners to make environmentally conscious and energy-saving upgrades to their main homes.

Understanding the specific requirements for the credit for the 2025 tax season is critical for tax pros to provide accurate guidance, especially when clients may be receiving conflicting information from other sources.

Let’s look at a real-world scenario to clarify how the energy-efficient home improvement credit works in practice.

John and Beth, a married couple, recently gave you their individual tax return documents, which include a receipt for new exterior windows and doors. John explained that they are in the process of replacing some windows and doors in their primary home over the next couple of years. The contractor offered them a discount on the windows and doors as part of a promotion running in December 2024. Although the installation will not be completed until sometime in 2025, the contractor told them that they qualify for the energy-efficient home improvement credit on their 2024 tax return. Is this accurate?

Unfortunately for John and Beth, the contractor was incorrect.

The first step to take when determining a taxpayer’s eligibility for the credit is to look at the guidance provided in §25C. Individuals are allowed a nonrefundable tax credit for eligible improvements to their primary U.S. residence that meet energy-efficiency standards and for home energy audits. The credit is available for property placed in service before Jan. 1, 2033.

Great! John and Beth meet that requirement.

Next, you need to look at §25C(a) for guidance on the allowance of the credit, which states the improvements need to be completed/installed in order for the credit to be allowed; the key word being installed. Therefore, even though the couple paid for new exterior doors and windows in 2024, the credit cannot be claimed until they are installed in 2025.

While John and Beth plan to claim the credit for replacing doors and windows, it can also be claimed for more affordable and simple upgrades that can often be done by the homeowners themselves, such as adding insulation (e.g., exterior caulking and weather-stripping). Or it could apply to more costly items like central air conditioning systems and heat pumps.

If your clients are making improvements to their home this year, make sure you have discussions with them about the work they’re doing and when. Here’s a quick at-a-glance look at the key points of the energy-efficient home improvement credit.

Key points of the energy-efficient home improvement credit

• The credit is generally equal to 30% of the sum of the amounts the taxpayer pays or incurs during the tax year for qualified energy-efficient improvements installed during the tax year, qualified residential energy property expenditures (REPEs) and home energy audits.

• The annual credit is generally limited to $3,200.

  • $1,200 for energy-efficient property costs and improvements, with limits on exterior doors ($250 per door, $500 total), exterior windows and skylights ($600) and home energy audits ($150)
  • $2,000 for qualified heat pumps, water heaters, biomass stoves or biomass boilers

• There is no lifetime limit.

• Subsidies or rebates are subtracted from the cost when calculating the credit.

• Form 5695, Residential Energy Credits, must be filed.

• There is no carryforward of any credit in excess of the annual limit, so it might be advantageous to spread the improvements over a few years.

• New for 2025, taxpayers can only claim the credit for qualifying items if they are made by a certified manufacturer and include the product identification number (PIN) on their tax return.

Help your clients plan for making home improvements in 2025

Here are a few final tips to tell your clients that will help them easily claim the energy-efficient home improvement credit during next tax season if they’re having improvements made in 2025.

• Purchase from qualified manufacturer
• Keep the PIN
• Provide the PIN to your tax preparer
• Save receipts and documentation of the purchase