Home Energy Credit: Your simple guide to getting up to $3,200 back

Why this matters now

Energy bills are high. Old gear wastes heat and power. Small leaks and poor windows also waste money. This credit gives you real help. It can be up to $3,200 each year if you plan well. Because the credit is not refundable, it only wipes out the tax you owe. It does not carry forward. So timing and choices matter.

Core idea in plain words

The Energy Efficient Home Improvement Credit pays you back for part of certain home upgrades. You get 30% of qualified costs. Congress set yearly caps. Some items have their own caps too. If you split work over years, you can use the annual caps more than once. Because there is no lifetime limit, you could claim again next year if you do more work.

Energy Efficient Home Improvement Credit: What it covers

The program, in short, has two big buckets and one add-on:

Building envelope items. These seal the shell of the house. Think doors, windows, skylights, insulation, and air sealing.
Residential energy property. These are systems like HVAC, water heaters, and panels that meet strict efficiency tiers.
Home energy audits. A pro audit can qualify too.

Each bucket has rules. And each has a cap. We break it down below.

Annual caps and item limits at a glance

The yearly max is $1,200 for most items, plus $2,000 more for select high-efficiency heat devices. That gets you to the headline $3,200.

Category	What counts	Credit rate	Per-item cap	Annual cap
Doors (exterior)	ENERGY STAR doors	30%	$250 per door, $500 total	Part of $1,200 group
Windows & skylights	ENERGY STAR Most Efficient	30%	$600 total	Part of $1,200 group
Insulation & air sealing	Must meet IECC standard for the look-back year	30%	No item cap	Part of $1,200 group
Home energy audit	DOE-qualified auditor and report	30%	$150	Part of $1,200 group
Residential energy property (CEE “highest” tier)	ACs, furnaces, boilers, certain water heaters, and 200-amp+ electric panels and circuits	30%	$600 per item	Part of $1,200 group
Heat pumps & heat-pump water heaters	CEE “highest” tier	30%	—	Up to $2,000 per year
Biomass stoves/boilers	≥75% thermal efficiency	30%	—	Up to $2,000 per year

Good to know: Starting in 2025, most items need a Qualified Manufacturer Identification Number on your return. Insulation and air sealing are the main exceptions.

Who can claim it

Your main home in the U.S. It must be an existing home you improve.
You live there most of the year. Landlords cannot claim this credit for rentals.
Business use:
- If you use your home ≤20% for business, you can still claim the full credit.
- If you use >20% for business, you must prorate to the non-business share.

What the rules mean for real projects

Let’s turn rules into steps you can use.

1) Start with a plan

A plan helps you stack the annual caps. For example, you could do a heat pump this year for up to $2,000 and use the $1,200 bucket for windows and a panel upgrade. Next year you might do insulation and a door swap. Because there is no lifetime cap, this staggered plan can maximize the total credit.

2) Pick qualifying products

Look for labels and tiers. Most gear must meet the CEE highest efficiency tier in effect at the start of the year you install it.
Windows and skylights must meet ENERGY STAR Most Efficient.
Doors must meet ENERGY STAR for doors.
Heat pumps and HP water heaters must meet the top CEE tier.
Biomass stoves/boilers must reach 75% thermal efficiency.
Electric panels, sub-panels, branch circuits, and feeders can qualify if they meet the National Electrical Codeand are 200 amps or more.

3) Keep the right paperwork

You will need:

Paid invoices that show what was installed, where, and when.
The manufacturer certification, a spec sheet, or a link that proves the tier.
For 2025 items, the QMID from the maker.
For audits, the written report signed by a DOE-qualified energy auditor with the needed info.

4) Know what does not count

Labor for envelope items like insulation does not count.
Used equipment never counts.
New homes do not qualify for this credit.
Non-main homes or straight rental use are not eligible.

5) Factor in rebates and subsidies

If a utility gives a rebate and it lowers your purchase price, you must subtract that from the cost you use for the credit. This is true even if the utility pays the contractor for you. However, net metering credits for power you sell back do not reduce your basis. State “rebates” can be tricky. Some are not treated as true purchase-price reductions under federal rules and may be taxable income instead. Keep notes and receipts.

6) File the form the right way

Use Form 5695, Part II with your tax return for the year the work was installed.
Keep your backup docs with your records.
Because the credit is nonrefundable, it can only bring your tax to zero. It does not carry over.

How much can you really save? Three quick examples

1: Heat pump + panel upgrade

$9,000 cold-climate heat pump that meets CEE “highest” tier.
$2,500, 200-amp panelboard and feeder that meet code.
Credit: 30% of heat pump up to $2,000 = $2,000.
Credit: 30% of panel up to $600 = $600.
Total for the year: $2,600.

2: Windows + doors + insulation

$3,200 for three ENERGY STAR Most Efficient windows.
$1,000 for two ENERGY STAR doors.
$2,800 of blown-in cellulose that meets IECC.
Credit: Windows capped at $600.
Credit: Doors capped at $500.
Credit: Insulation 30% of cost, but the $1,200 annual group cap stops you at $100 more this year.
Total for the year: $1,200. You could do more insulation next year and claim again.

3: Audit first, then staged upgrades

$500 professional audit in 2025 by a DOE-qualified auditor.
Credit: 30% of $500 capped at $150.
You then follow the report and install air sealing in late 2025.
Credit: 30% of materials, staying within the remaining $1,050 of your $1,200 group cap.

What counts as “qualifying” gear and tests

Windows and skylights: Must meet the ENERGY STAR Most Efficient criteria for the current year. Keep the model number.
Doors: Must meet ENERGY STAR for exterior doors. The per-door cap is $250.
Insulation and air sealing: Must meet IECC standards for a look-back year. For 2025 installs, think 2023 IECC. Materials must last 5 years or more.
Audits: From 2024 on, your auditor must be certified under a DOE-listed program. The written report must include the auditor’s name and ID, your home address, and a ranked list of fixes with savings estimates.
Residential energy property: Systems must meet the CEE highest efficiency tier. This includes certain ACs, furnaces, boilers, and 200-amp+ service equipment that feeds them.
Heat pumps and biomass: Heat pumps and HP water heaters need the top CEE tier. Biomass units need ≥75% thermal efficiency.

Timing and strategy

Because the credit caps reset each calendar year, you can phase work:

Do a heat pump and panel in one year to use the $2,000 plus part of the $1,200 bucket.
Do windows, doors, and insulation the next year to use the $1,200 again.
Pair work with state and utility rebates. You still get the federal credit on your net cost.

Tip: If your tax bill is small, consider doing upgrades in a year when your income is higher, or split projects across years so you can use the credit each time.

Common mistakes and how to avoid them

Mistake: Counting labor for insulation.
Fix: Only materials and systems count for envelope items.
Mistake: Using gear that does not meet the CEE highest tier or the right ENERGY STAR level.
Fix: Check the model list before you buy.
Mistake: Claiming the credit for a rental you do not live in.
Fix: Use it only for your main home.
Mistake: Filing for the year you ordered the gear, not the year it was installed.
Fix: File in the install year on Form 5695.
Mistake: Ignoring rebates in your math.
Fix: Subtract utility subsidies and true purchase-price rebates from your cost.
Mistake: Skipping records.
Fix: Save receipts, spec sheets, labels, and the audit report.

Simple step-by-step checklist

List your goals. Lower bills. Better comfort. Health.
Book a home energy audit with a DOE-qualified auditor.
Fix the cheap air leaks first. Attic hatch, rim joist, bath fans, and ducts.
Add insulation to meet or beat your local IECC levels.
Choose windows and doors that meet the right ENERGY STAR levels.
Plan your HVAC. If your system is old, a heat pump can be a win.
If needed, upgrade your electric panel to 200 amps to support new gear.
Track rebates from your utility or state.
Install, then file Form 5695, Part II for the right tax year.
Repeat next year if you have more work. There is no lifetime cap, only yearly caps.

What happens with taxes and refunds

The credit is nonrefundable. If the credit is bigger than your tax, the extra does not carry over.
You cannot claim it for a home used only for business.
If the home is used partly for business, you may still claim either the full credit (for business use up to 20%) or a prorated share if the business use is higher.

What about the name and timing of the program?

The formal name used by the IRS is the Energy Efficient Home Improvement Credit. It covers items put in service from January 1, 2023, through December 31, 2025. The credit rate is 30% in those years. For 2022 or earlier work you must use the older rules and the older version of Form 5695.

Milwaukee note: pairing credits with a real contractor

If you live in Southeast Wisconsin, you can pair this federal credit with Focus on Energy rebates and with local utility offers. Many homes in our climate see fast payback from air sealing, attic insulation, and cold-climate heat pumps. Winters here are long. So smart upgrades bring comfort and safety, not just savings.

Tiltin Windows, Doors & More can help

If you are in Milwaukee or nearby, our team at Tiltin Windows, Doors & More has more than 20 years of local experience. We can help you pick windows and doors that meet the needed ENERGY STAR levels, size them right, and plan the order of work so you use your Home Energy Credit well. Want ideas and a simple quote? Reach out for a friendly, free consultation.

FAQs

Q1. Is the Energy Efficient Home Improvement Credit the same as the Home Energy Credit?
Yes. In this article we call it the Home Energy Credit for short. The IRS uses the full name Energy Efficient Home Improvement Credit.

Q2. Can I claim it on a second home or rental?
No, not for a home you do not live in. It must be your main home. If you live there part time and use it mostly as your home, you may qualify.

Q3. Do labor costs ever count?
Yes for many residential energy property items like heat pumps and water heaters. No for envelope items like insulation and air sealing.

Q4. How do rebates affect my credit?
You must subtract utility purchase-price subsidies and some seller rebates from your cost before you compute the credit. Net metering credits do not reduce it.

Q5. What form do I file and when?
File Form 5695, Part II with your tax return. Claim it for the year the property was installed.

Q6. What if my tax is lower than the credit?
The credit is nonrefundable and does not carry forward. It can bring your tax to zero but not below.

Q7. Do I need the QMID?
For most items placed in service in 2025, yes. You will report the Qualified Manufacturer Identification Number on your return. Insulation and air sealing are exceptions.

Sources

IRS. “Energy Efficient Home Improvement Credit (Section 25C).” Energy Efficient Home Improvement Credit | Internal Revenue Service Accessed Nov 4, 2025.
IRS. “Form 5695, Residential Energy Credits, and Instructions.” Instructions for Form 5695 (2024) | Internal Revenue Service Accessed Nov 4, 2025.
IRS Notice 2023-59. “Home Energy Audits for Section 25C.” Notice 2023-59, Guidance on Requirements for Home Energy Audits for Purposes of the Energy Efficient Home Improvement Credit und Accessed Nov 4, 2025.
IRS Announcement 2024-19. “Tax Treatment of DOE Home Energy Rebates.” irs.gov. Accessed Nov 4, 2025.
U.S. DOE. “Certification Programs for the Energy Efficient Home Improvement Credit.” energy.gov. Accessed Nov 4, 2025.
Consortium for Energy Efficiency (CEE). “Residential Heating and Cooling Initiative Tiers.” cee1.org. Accessed Nov 4, 2025.