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Recent Tax Updates

2023 Residential Clean Energy Credit

Residential Clean Energy Credit

The Inflation Reduction Act of 2022 extended and increased the Residential Energy Credit and renamed it the Residential Clean Energy Credit.

Who Qualifies for the 2023 Residential Clean Energy Credit?

Taxpayers may claim the residential clean energy credit for improvements to their main home, whether they own or rent it. The credit applies to new or existing homes located in the United States.

Taxpayers may be able to claim a credit for certain improvements made to a second home located in the United States that they live in part-time and don’t rent to others.

Business Use of Home

If a taxpayer uses their home partly for business the amount of the credit is calculated as follows:

  • Taxpayers will receive the full credit if the home is used 20% or less for business.
  • The credit is based on the share of expenses allocable to nonbusiness use if the home is used for more than 20% for business.

Is the Residential Clean Energy Credit Refundable?

This nonrefundable credit is 30% of the costs of new, qualified clean energy property that is installed during 2023. Any unused credit may be carried forward to future years.

There is no annual or lifetime limit for this credit (except for fuel cell property). A taxpayer may claim this credit every year that they install eligible property until the credit begins to phase out in 2033.

Residential Clearn Energy Credit. Senior couple viewing a wind turbine model.

Which Improvements Qualify for the Residential Clean Energy Credit?

Improvements that qualify for the Residential Clean Energy Tax Credit include solar, wind, geothermal, and fuel-cell technologies:

  • Solar energy panels
  • Solar water heaters that are certified by the Solar Rating Certification Corporation or a comparable entity endorsed by the taxpayer’s state.
  • Wind turbines
  • Geothermal heat pumps that meet Energy Star requirements in effect at the time of the purchase.
  • Fuel cells – Credit is limited to $500 for each half kilowatt of capacity. If more than one person lives in the home, the combined credit for all residents cannot exceed $1,667 for each half kilowatt of fuel cell capacity.
  • Battery storage technology that has a capacity of at least 3 kilowatt hours.

How to Claim the Residential Clean Energy Credit?

Taxpayers will need to file Form 5695, Residential Energy Credits with their tax return to claim the credit. This credit must be claimed for the tax year when the property is installed, not purchased.

For more information see the following:

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Mark Castro, CPA

Mark Castro, CPA

Mark has been with CrossLink Professional Tax Solutions (CPTS) since 2008, but has been in the tax industry since 1990. As the government/tax industry liaison for CPTS, Mark has been very active in working with the IRS, States, and other tax industry members to help improve communications, promote standardization, and simplification of eFile systems. Mark has also been active with industry associations as a board member of the National Association of Computerized Processors (NACTP) and the Council of Electronic Revenue Communication Advancement (CERCA) for many years. These two associations work with the IRS and States to help solve key eFile and electronic tax system issues and work to improve the operations of the State and IRS eFile systems.

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