Tax season is here, and if you haven’t filed your return for the 2024 tax year, there’s still time to grab a little-known credit that could save you up to $1,500. It’s called the Energy Efficient Home Improvement Tax Credit, and it’s designed to reward homeowners who make energy-saving upgrades to their homes.
While most people know about tax credits for children or education, many miss out on this energy credit, which could reduce your energy bills and lower your taxes. Let’s look at what this credit is, who qualifies, and how you can apply before it’s too late.
What Is the Energy Efficient Home Improvement Tax Credit?
This tax credit gives you up to $1,500 back for certain energy-efficient upgrades you make to your home. A common example is replacing your old water heater with a heat pump water heater (HPWH), which uses much less electricity.
If you live in areas with extreme weather—very hot summers or cold winters—this credit can be especially helpful. These heat pump systems are up to four times more efficient than regular heaters and can cut your power bill significantly.
Why Was This Tax Credit Created?
The goal of this program is to help American families cut energy costs and encourage the use of cleaner, more efficient systems. Older water heaters can account for nearly 20% of a household’s energy bill. By switching to a more efficient model, you not only save on your monthly bills but also get a tax break.
So, this credit helps both your wallet and the environment.
How to Apply for the $1,500 Credit
To claim this tax credit, all you have to do is include Form 5695 (Residential Energy Credits Part II) when filing your taxes.
Here’s a key point:
The water heater must have been installed (not just purchased) in 2023 to count for your 2024 tax return. If it was installed in a different year, you cannot apply this year.
Make sure to keep receipts and product details in case the IRS asks for proof later.
Who Can Get This Credit?
To be eligible for the Energy Efficient Home Improvement Tax Credit, you must:
- Own a home in the United States.
- Install the energy-efficient system after January 1, 2023.
- Live in an existing home (not new construction).
- Use the home as your main residence.
- Install a unit that meets high energy efficiency standards as set by the Consortium for Energy Efficiency (CEE).
What If You Can’t File Your Taxes on Time?
If you’re running out of time and can’t file before the April 15, 2025 deadline, you can request an automatic extension. But remember—if you owe taxes, you must still pay by April 15 to avoid penalties, even if you get an extension.
You can use IRS free tools to help you file if you qualify based on your income. These tools are easy to use and can guide you through the steps.
Tax time doesn’t have to be all stress. With smart planning, you can turn home upgrades into tax savings. The $1,500 Energy Efficient Home Improvement Tax Credit is a golden opportunity for homeowners, especially those upgrading to better water heating systems. File your taxes soon, and don’t let this chance pass you by.
