Written by Caroline Schafer
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, is the largest set of tax changes since 2017. The OBBBA is important to taxpayers because it implements new temporary and permanent tax cuts and deductions benefiting both individuals and businesses. The purpose of this article is to provide clarity on the specific tax section related to expiring home energy credits.
Section 70505, 70506, and 70507 of the OBBBA addresses expiring home energy credits. The OBBBA is doing away with most of the federal home energy tax credits for property that is placed in service after December 31, 2025. This tax provision covers any energy-efficient improvements made to your home after January 1, 2023, through December 31, 2025. Energy-efficient improvements made during this period may be eligible for a credit for 30% of qualified expenses. You may be asking yourself if you qualify to claim a home energy credit. To claim the credit, improvements must be made to your main home. The IRS defines your main home being where you live most of the time of the year. The credit can be claimed whether you rent or own the home but cannot be claimed if you are a landlord not living in the home. You may not claim the credit if improvements are made to property that you use solely for business purposes. For your expenses to qualify and meet energy efficient standards, your systems and materials used for improvements must be new. (Source: https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit)
The maximum home energy credit you can claim each tax year through December 31, 2025, is “$1,200 for costs on energy efficient property or energy efficient home improvements,” and “$2,000 per year for qualified heat pumps, water heaters, biomass stoves or biomass boilers.” (Source: https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit) This energy credit can be claimed for more than just improvements. You may be eligible to take an annual energy tax credit if you have invested in “solar, wind, geothermal, fuel cells, or battery storage technology.”(Source: https://www.irs.gov/credits-deductions/residential-clean-energy-credit) It is important that you understand you can claim the maximum annual credit every year that you made improvements which are eligible for the home energy credits up until 2025. Note that the credit must be claimed for the tax year when the property or improvement was installed, not just when it was purchased. After December 31, 2025, federal credits for energy efficient home improvements will have expired.
If you think you qualify for a home energy credit you should consult with your financial or tax advisor. Provide your tax preparer with the necessary documentation of qualified expenses you made. Form 5695, Residential Energy Credits will be filed with your tax return to claim the credit. If you made energy efficient improvements to your home now is the time to act while the credit still remains available. Contact us for any guidance, and we would be happy to assist in seeing if you qualify for this credit.
It is important to stay informed and know when a tax credit may apply to you. Feel free to reach out to us with any questions or concerns you may have. Darnall, Sikes & Frederick appreciates the trust you have placed in us to handle your financial and tax needs.
References
https://www.irs.gov/credits-deductions/residential-clean-energy-credit
https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit