Does your building suffer from drafty windows, rattly old air conditioners, or a wheezing steam heating system nearing its final breaths? Are you ready to change your gas boiler or furnace to an electric heat pump? There is a new tax credit that can help you make an upgrade.
As part of the 2022 Inflation Reduction Act (IRA), the Federal government created the Energy Efficient Home Improvement Tax Credit, also referred to as 25C. If you are the owner of a single-family home or a co-op or condo apartment, the 25C tax credit will reduce your income taxes if you make certain energy efficiency or electrification improvements.
Heat pumps provide highly efficient electric heating and cooling – they operate by moving heat, rather than producing it, which means they can achieve effective “efficiencies” of over 300%! If your apartment fits into one of the following categories, you are a particularly good candidate for installing heat pumps for heating:
- Has a through-wall sleeve for an air conditioner or a combined heating/cooling unit (packaged terminal air conditioner or PTAC)
- Uses electric baseboard for heating
- Uses oil for heating
- Your gas boiler or furnace is old and ready for replacement
Heat pumps are also used for creating hot water, and could be a good option if your building is looking to upgrade or replace the existing hot water heater.
What’s eligible?
The goal of 25C is to encourage you to install highly efficient electric equipment for heating and cooling your “main home,” as well as to support other improvements that make your home more energy efficient, such as doors, windows, insulation and air sealing.
25C provides a capped 30% tax credit for heat pumps, heat pump water heaters (HPWHs), and select weatherization, building envelope, and electric infrastructure upgrades.
- Air-source heat pumps for space heating/cooling and water heating are eligible for a tax credit up to $2,000 per year.
- All non-heat pump measures are eligible for a combined tax credit up to $1,200 per year.
- The tax credit has a maximum annual cap of $3,200, which resets each year and can be used again for subsequent upgrades.
To qualify for the tax credit, all equipment and upgrades must meet specified efficiency requirements.
Note that there are other tax credits for solar panels, batteries and other renewable energy.
Who’s eligible?
In addition to single family homeowners, apartment owners in condominium management associations or tenant-stockholders in cooperative housing corporations are eligible for the tax credit. The tax credit calculation for an apartment owner is based on your proportionate ownership share of the building association or corporation.
Timeline
The tax credit is available now through 2032. You claim it on your tax filings for the tax year that the upgrades are placed in service.
Find Out More
For additional information, check out this 25C overview. Have questions about the 25C tax credit and how to maximize it at your property? Contact us for more detailed information.
IMPORTANT DISCLAIMER
This material about the 25C tax credit has been prepared for informational purposes only using the best available information and guidance from the Internal Revenue Service (IRS), Department of the Treasury, and the Department of Energy (DOE). Bright Power does not provide tax advice and the information provided about IRA tax credits should not be relied upon as tax advice. We strongly recommend consulting with your tax advisors and accountants before claiming the tax credit. Bright Power is not responsible for any incorrect tax credit and deduction determinations.