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CASE STUDY
Energy-efficient home
improvement credit
Editor: The Inflation Reduction Act of 2022, As a practical matter, practitioners
Patrick L. Young, CPA P.L. 117-169, expanded and renamed should be aware of the types of expendi-
the nonbusiness energy property credit tures that qualify for the credit. However,
as the energy-efficient home improve- for purposes of the credit prior to the In-
ment credit. The following discussion flation Reduction Act, the taxpayer could
applies to qualifying expenditures that rely on the manufacturer’s certification
relate to property placed in service after that an item was eligible for the credit,
Dec. 31, 2022, and prior to Jan. 1, 2033 according to Notice 2009-53, which
(Sec. 25C(i)(2), as amended by the In- also contained manufacturer certification
flation Reduction Act). requirements for building envelope com-
ponents and residential energy property
For qualifying Amount of the credit expenditures. Practitioners should be alert
property placed in Individuals can claim a nonrefundable for similar guidance from the IRS for the
service after 2022, credit for a tax year in an amount equal to applicability of the energy-efficient home
30% of the sum of (1) the amount paid
improvement credit under the Inflation
the nonbusiness or incurred by the taxpayer for qualified Reduction Act.
energy property credit energy-efficiency improvements installed
during the year (known as energy-efficient Credit limitations
has been expanded building envelope components); plus (2) Under the Inflation Reduction Act, the
and renamed as the the amount of residential energy property lifetime maximum credit limitation that
energy-efficient home expenditures (known as qualified energy was in place under the nonbusiness energy
property) paid or incurred by the taxpayer
property credit has been repealed. The
improvement credit. during the year; plus (3) the amount paid energy-efficient home improvement credit
or incurred by the taxpayer during the year is subject to the following limitations
for home energy audits (Sec. 25C(a), as (Sec. 25C(b), as amended by the act):
amended by the act). ■ Annual overall limitation: The credit
For energy-efficient building envelope allowed for any tax year cannot exceed
components, the credit is allowed only $1,200.
for amounts paid to purchase the com- ■ Annual limitation for qualified energy
ponents. It is not available for amounts property: The credit allowed for any
paid for on-site preparation, assembly, or tax year with respect to any item of
original installation of the components. qualified energy property cannot
In contrast, the credit for qualified energy exceed $600. PHOTO BY COMSTOCK/STOCKBYTE/THINKSTOCK
This case study has been adapted property is allowed not only for amounts ■ Annual limitation for exterior windows
from Checkpoint Tax Planning and paid to purchase the property but also for and skylights: The credit allowed for
Advisory Guide’s Individual Tax Planning
topic. Published by Thomson Reuters, costs of on-site preparation, assembly, or any tax year with respect to all exterior
Carrollton, Texas, 2023 (800-431-9025; original installation of the property (Sec. windows and skylights in the aggregate
tax.thomsonreuters.com). 25C(d)(1), as amended by the act). cannot exceed $600.
58 March 2023 The Tax Adviser
