Federal Tax Incentives:
Non-Business Energy Property Credit (IRC §25C)
Background (Energy Efficient Home Improvement Credit)
The former “Non‑Business Energy Property Credit” under § 25C has been superseded, and § 25C is now the “Energy Efficient Home Improvement Credit,” which (for property placed in service on or after Jan. 1, 2023) generally equals 30% of qualified costs subject to annual dollar caps rather than a lifetime cap. See Energy Efficient Home Improvement Credit, Internal Revenue Service (describing 30% credit with annual limits); § 25C(a)–(b) (stating 30% credit with $1,200/$2,000 annual caps).
Beginning in 2023, § 25C covers qualified energy efficiency improvements (for example, insulation, qualifying exterior doors, windows, and skylights) and certain residential energy property, but the credit is now 30% with item‑level annual caps (not lifetime) dollar limits—including doors (up to $250 each, $500 total), windows/skylights (up to $600), and a general $1,200 annual cap plus a separate $2,000 annual cap for heat pumps/heat‑pump water heaters and qualifying biomass stoves/boilers. § 25C(b)(1)–(5) (2025).
Availability
Current IRS guidance indicates you may claim the Energy Efficient Home Improvement Credit for qualified improvements placed in service through Dec. 31, 2025, and from 2025 forward, a product identifier (QMID/PIN) from a qualified manufacturer must be reported for specified items; earlier IRS materials and § 25C, as amended by the IRA, reflected availability to 2032, but IRS webpages now show a 2025 end date. See Energy Efficient Home Improvement Credit, Internal Revenue Service (showing “through December 31, 2025” and QMID); Instructions for Form 5695 (2024) (noting extension through 2032 under IRA); REG‑118264‑23 & Rev. Proc. 2024‑31 (PIN/QM registration).
Qualification & Documentation
Eligible property must meet the energy‑efficiency and certification standards prescribed by the Secretary (in consultation with DOE/EPA), and (from 2025) specified property must carry a qualified manufacturer identifier reported on the return. See § 25C(d)(2); Energy Efficient Home Improvement Credit, Internal Revenue Service.
Taxpayers must retain records substantiating eligibility and, for 2025 specified items, include the manufacturer’s qualified manufacturer identification number (QMID)/ product identification number (PIN) on the return per Treasury/IRS guidance. See REG‑118264‑23 & Rev. Proc. 2024‑31.
Financing Coordination
Expenditures must be reduced as required by § 25C and related guidance (for example, for certain rebates/amounts); rely on the current Form 5695 Instructions and § 25C for the operative reduction rules rather than the prior‑law “subsidized energy financing” language. See Instructions for Form 5695 (2024); § 25C(e)–(f).
Cost‑Sharing & Marital Rules (prior law)
Under the current annual‑limit framework, allocation of costs among co‑owners is addressed in Form 5695 instructions; assert neighbor sharing only if the current instructions support it for the year at issue. See Instructions for Form 5695 (2024).
Marital status, multi‑home usage, and business‑use allocation rules are governed by § 25C and the Form 5695 instructions; taxpayers do not carry over the obsolete lifetime‑cap spousal mechanics from pre‑2023 law. § 25C(b)–(c), (f).
Basis Adjustment
25C(f) requires appropriate basis adjustments to the residence for claimed credits. See also IRS Publication 523.
Prior‑Law Dollar Limits (remove/replace)
These pre‑2023 lifetime and item sub‑limits are obsolete; since 2023 the statute imposes annual limits of $1,200 (aggregate) with $250/$500 for doors and $600 for windows/skylights, plus a $2,000 annual cap for heat pumps, heat‑pump water heaters, and qualifying biomass stoves/boilers. See § 25C(b)(1)–(5).
Credit Calculation
Under current law, the § 25C credit equals 30% of (i) qualified energy‑efficiency improvements, (ii) residential energy property expenditures, and (iii) amounts paid for a home energy audit, subject to the annual caps noted above. See § 25C(a)–(b).
In general, § 25C(a) states the Non-Business Energy Property tax credit is equal to the sum of the following:
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(1) 30% of the amount paid or incurred for qualified energy efficiency improvements installed during such taxable year;
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25C(c)(1) states in general, the term ”qualified energy efficiency improvements” means any energy efficient building envelope component, if—
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such component is installed in or on a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer's principal residence (within the meaning of section 121),
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the original use of such component commences with the taxpayer, and
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such component reasonably can be expected to remain in use for at least 5 years, but the standards for particular items (e.g., 2021 IECC insulation, ENERGY STAR/CEE tiers) are set by current guidance.
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Per § 25C(c)(3), the term “building envelope component” means—
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any insulation material or system, including air sealing material or system, which is specifically and primarily designed to reduce the heat loss or gain of a dwelling unit when installed in or on such dwelling unit,
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exterior windows (including skylights), and
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exterior doors.
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Per § 25C(c)(4), the term “dwelling unit” includes a manufactured home which conforms to Federal Manufactured Home Construction and Safety Standards (part 3280 of title 24, Code of Federal Regulations).
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(2) Any residential energy property costs paid or incurred during such taxable year; and
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§ 25C(b)(2), (b)(5), (d)(1)–(2) defines the term “qualified energy property” to include costs for qualified energy property installed in connection with a U.S. principal residence, including allocable labor, subject to the $600 per‑item limit and the $2,000 category cap for certain high‑efficiency heating equipment.
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More specifically, the term "qualified energy property" means any of the following:
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(A) Any of the following which meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year in which the property is placed in service:
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(i) An electric or natural gas heat pump water heater.
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(ii) An electric or natural gas heat pump.
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(iii) A central air conditioner.
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(iv) A natural gas, propane, or oil water heater.
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(v) A natural gas, propane, or oil furnace or hot water boiler.
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(B) A biomass stove or boiler which-
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(i) uses the burning of biomass fuel to heat a dwelling unit located in the United States and used as a residence by the taxpayer, or to heat water for use in such a dwelling unit, and
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(ii) has a thermal efficiency rating of at least 75 percent (measured by the higher heating value of the fuel).
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(C) Any oil furnace or hot water boiler which-
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(i) meets or exceeds 2021 Energy Star efficiency criteria, and
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(ii) is rated by the manufacturer for use with fuel blends at least 20 percent of the volume of which consists of an eligible fuel.
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(D) Any improvement to, or replacement of, a panelboard, sub-panelboard, branch circuits, or feeders which-
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(i) is installed in a manner consistent with the National Electric Code,
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(ii) has a load capacity of not less than 200 amps,
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(iii) is installed in conjunction with-
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(I) any qualified energy efficiency improvements, or
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(II) any qualified energy property described in subparagraphs (A) through (C) for which a credit is allowed under this section for expenditures with respect to such property, and
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(iv) enables the installation and use of any qualified energy efficiency improvements or other specified property described above, excluding biomass stove(s) or boiler(s).
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(3) Amount(s) paid or incurred by the taxpayer during the taxable year for home energy audits
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For purposes of this section, the term "home energy audit" means an inspection and written report with respect to a dwelling unit located in the United States and owned or used by the taxpayer as the taxpayer's principal residence (within the meaning of section 121) which-
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(1) identifies the most significant and cost-effective energy efficiency improvements with respect to such dwelling unit, including an estimate of the energy and cost savings with respect to each such improvement, and
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(2) is conducted and prepared by a home energy auditor that meets the certification or other requirements specified by the Secretary in regulations or other guidance (as prescribed by the Secretary not later than 365 days after the date of the enactment of this subsection).
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