Tax Benefits for Residential Building Improvements

This rule allows for the use of renewable energy tax credits for renewable energy-based systems, including geothermal heat pumps.

Homeowners can claim this tax credit if a renewable system is utilized within either an existing home or in new construction. The residence must serve as a primary dwelling; rentals do not qualify.

The credit structure is as follows:

• 30% for systems placed in service by 12/31/2019;
• 26% for systems placed in service after 12/31/2019 and before 01/01/2023;
• 22% for systems placed in service after 12/31/2022 and before 01/01/2024;

Homeowners can claim these deductions by filing IRS Form 5695 with their tax return. Please note that this tax deduction is available until December 31, 2023. 

This rule allows contractors to claim a tax benefit for new homes built to specific energy efficiency standards.

Contractors can claim this tax credit of $2,000 per dwelling unit ($1,000 for manufactured homes) for each new energy-efficient (meeting or exceeding current EnergyStar standards) home that is constructed. Savings achieved through the inclusion of energy-efficient features include 

• High R-value insulation and roofing,
• High-efficiency HVAC systems,
• Modernized Windows and Doors. 

For your project to qualify, a complete energy analysis must be conducted by an engineer. Once the certification is finished, and the engineer provides a 45L certification, you will receive a certification package containing all of the needed documentation to submit to the IRS.

Please note that this credit must be claimed on your 2021 (filed in 2022) tax return.

This rule allows a deduction of up to $1.80 per square foot is available if improvements are made that visibly demonstrate a 50% reduction in energy usage accomplished solely by making capital improvements to the heating, cooling, ventilation, hot water, and interior lighting systems.

Eligible buildings include:

• Commercial buildings, including warehouses and parking garages;
• Multifamily properties with four stories or more;
• Government-owned buildings, such as public universities, libraries, and community centers.

Building owners can claim this tax deduction if:

• They can demonstrate the necessary reduction in energy usage accomplished through improving these systems.

To qualify, owners must have a third-party (separate from the project’s designer) conduct a Section 179D survey utilizing appropriate measurement software that has been approved by the Department of Energy.

Contractors can claim this deduction if:

• They have input into the design or are contractually obligated to participate in the design process. This is specifically true when a contractor is engaged in a government project and are responsible for any design work.

Please note: only projects completed after December 31, 2017, are eligible.

Additional Information:
EnergyStar Guidance on the 179D Deduction