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The Inflation Reduction Act provides up to $8,000 per year for homeowners for making energy-efficient improvements to their primary residence. The credit has no lifetime limit, which means you can claim up to $8,000 in credits every year you make improvements through 2032.
The credits are not refundable, so if you don’t owe taxes, you won’t receive that money as a refund. With just two months left in 2024, if you haven’t made any home improvements this year, you may want to consider these energy-efficient upgrades that can reduce your tax liability this year while saving you money on energy costs for decades.
Here are some of the best ways you can save money, long-term, with updates to your home.
New Windows
Replacing older, single pane windows with Energy Star-rated double-pane windows can save you as much as $568 per year on home heating and cooling costs, which is as much as 12% of your home energy costs, according to the U.S. Department of Energy.
While the tax credit for new windows maxes out at $1,200 per year, the benefits extend beyond a lower tax bill. New windows make your home more comfortable, improve its look dramatically and can add an average of $13,766 to the value of your home.
Attic, Floor and Basement or Crawl Space Insulation
You can save up to 20% on home heating and cooling costs by adding the appropriate insulation to your attic, underneath floors and in your crawl space or basement, according to the U.S. Department of Energy.
Keep in mind that the tax credit for windows and insulation is combined; so if you max out the credit with your windows upgrade, you can’t claim the money for insulation this year. It might make sense to put this upgrade off until January to maximize your tax credit and still have your home well-insulated in time for the coldest months.
Solar Panels
The return on investment you’ll find from installing solar panels on your home varies widely depending on the cost of electricity in your region, how much solar you can generate from your rooftop and whether you lease or purchase your solar panels. The federal government is offering up to 30% back on the purchase of your solar panel installation — that’s before any state or local incentives.
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According to EnergySage.com, the average U.S. homeowner can save $48,059 over 25 years if their solar array generates 100% of the electricity needed for their household. The savings is much higher in California, a sunny state with high electricity costs, while it’s lower in Washington. The state of Washington sees less sunlight and electricity only costs 12 cents per kilowatt hour, compared to 32 cents in California.
Heat Pump
Today’s heat pumps can work in virtually every climate, which is just one reason they are surging in popularity. In 2022 BlocPower.io reported heat pump sales exceeded the sales of gas furnaces in the U.S.
CarbonSwitch.com said that switching from an oil furnace to a heat pump system can reduce your heating costs by an average of $947 per year. If your home currently has baseboard heaters, you’ll save an average of $1,247 with this upgrade. About the only time a heat pump system wouldn’t make sense is if your home uses natural gas; you’d only save between $105 and $199 per year, depending on the type of system.
Home Energy Audit
The federal government is offering $150 toward a home energy audit. But your local electricity provider may offer an audit for free. While it won’t yield cost savings directly, an audit gives you a roadmap for future energy-efficient improvements, making it a wise investment of time and money.
It hardly makes sense to turn down free money in the form of tax credits from the federal government. Formulating a careful plan for energy-efficient upgrades in your home can also put money in your pocket for decades to come.