What this line means
A credit for qualified energy-efficient improvements to your main home. The credit is 30% of costs, with an overall annual limit of $3,200. Sub-limits apply: $2,000 for heat pumps, heat pump water heaters, and biomass stoves/boilers; $1,200 for all other improvements including insulation, windows, doors, and energy audits. Home energy audits are capped at $150. You calculate it on Form 5695, Part II.
Does this apply to you?
- You installed a qualifying heat pump, heat pump water heater, or biomass stove in your main home
- You replaced exterior windows, skylights, or exterior doors with energy-efficient models meeting current Energy Star requirements
- You added insulation or installed a central air conditioning system that meets efficiency standards
- You paid for a home energy audit conducted by a qualified auditor
Easy to overlook
The annual limit resets every year Unlike the old lifetime cap that applied before 2023, this credit has an annual limit that resets each tax year. 1 You can claim up to $3,200 every year through 2032. A homeowner who replaces windows this year ($1,200 credit) and installs a heat pump next year ($2,000 credit) gets the full credit in both years. Filers who remember the old lifetime limits sometimes assume they have already used up their eligibility. General filing pattern — annual limit resets each year
Heat pumps qualify for the higher $2,000 sub-limit Heat pumps, heat pump water heaters, and biomass stoves have a separate $2,000 sub-limit that does not count against the $1,200 limit for other improvements. 2 A homeowner who installs a heat pump ($2,000 credit) and replaces windows ($600 credit) in the same year claims $2,600 total — the two sub-limits stack up to the $3,200 overall cap. IRS Form 5695 Instructions — Residential Energy Credits, Part II
Watch out for this
Claiming the credit for improvements to a rental property or second home. The Energy Efficient Home Improvement Credit applies only to your main home — the one where you live most of the year. Unlike the Residential Clean Energy Credit on line 5a, this credit does not extend to second homes or vacation properties. Improvements to rental properties are deductible as business expenses on Schedule E, not claimed as credits here.
Footnotes
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IRS Form 5695 Instructions, Part II - Energy Efficient Home Improvement Credit. https://www.irs.gov/instructions/i5695 ↩
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IRS Form 5695 Instructions, Part II - Qualified Energy Property. https://www.irs.gov/instructions/i5695 ↩