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Does My Greenwood Home Qualify For the 25C Tax Credit?

Dec 12, 2023

There are many great reasons for making your Greenwood home more energy-efficient and environmentally friendly, but it’s hard to top the one the federal government offers: a tax credit worth as much as $3,200!

What’s the 25C Tax Credit?

Adopted by Congress in 2005 (and officially known as the Nonbusiness Energy Property Credit), what’s commonly called the 25C tax credit is a federal incentive aimed at encouraging homeowners throughout Johnson County and across the nation to invest in energy-efficient improvements so they can reduce their carbon footprint.

Does The 25C Tax Credit Provide a Tax Deduction?

Unlike many federal tax incentives, the 25C tax credit is exactly what its name suggests: a tax credit. Generally speaking, tax credits are even better than tax deductions. That’s because tax deductions simply reduce the amount of your taxable income, while credits apply directly to taxes you owe. The 25C tax credit offers Greenwood homeowners as much as $3,200 off the taxes they actually owe. (However, your tax credit can’t be bigger than the amount you owe in taxes.)

What Qualifies For The 25C Tax Credit?

Greenwood homeowners can take advantage of the 25C tax credit by investing in specific energy-efficient improvements such as:

  • Heating and Cooling Systems. Upgrading to more energy-efficient air conditioners, heat pumps, furnaces, and other sources such as biomass stoves.
  • Water Heaters. Choosing energy-efficient water heaters like solar or tankless models.
  • Insulation Upgrades. Adding insulation in the home’s walls, ceilings, and other areas.
  • Windows and Doors. Models that meet specific energy-efficiency criteria for U-factor and Solar Heat Gain Coefficient (SHGC) qualify.
  • Roof Replacements. Installing certain types of reflective roofs designed to reduce heat gain may earn a credit.

Can I Get The 25C Tax Credit On The Home I’m Building?

Unfortunately, the 25C tax credit is only available for improvements to existing homes, not to homes that are under construction.

How Much Will I Get For The 25C Tax Credit?

As noted earlier, this is a tax credit, not a deduction or a refund. The 25C tax credit currently rewards Greenwood homeowners with up to 30 percent back on the cost of specific energy-efficiency improvements and activities. There is an annual limit of $2,000 for heat pumps and heat pump water heaters and $1,200 for other upgrades. In other words, if you spend $4,000 on a qualifying improvement, you’ll get a $1,200 tax credit, while a $2,000 improvement will result in a $600 credit.

How Do I Obtain The 25C Tax Credit?

Greenwood homeowners need to follow a process to obtain this generous tax credit:

  • Verify eligibility. Homeowners should ensure that their planned upgrades qualify for the 25C tax credit by visiting the Department of Energy (DOE) or Internal Revenue Service (IRS) websites.
  • Check certifications. Ensure that the products used for the upgrades have the right certifications from organizations such as ENERGY STAR, which can simplify the verification process.
  • Perform improvements. After verifying their eligibility, Greenwood homeowners can proceed with making energy efficiency upgrades to their homes. It’s important to save receipts, product certifications, and any other documentation related to the upgrades.
  • File taxes. Homeowners claim the credit by filing IRS Form 5695 and submitting it with their income tax returns. They should remember to save all receipts and other documents in the event their taxes are audited.

Can I Apply For The 25c Tax Credit More Than Once?

The 25C tax credit is available to Greenwood homeowners every year. That means they could receive the credit for one improvement to their homes this year and receive it again for a different improvement next year. The current 25C tax credit program will remain available until at least 2032.

What Else Do You Want to Know About the 25C Tax Credit?

The 25C tax credit gives Greenwood homeowners a valuable incentive for making their residences more energy efficient. By investing in improvements, homeowners not only contribute to a greener planet but also receive financial benefits. If you’re considering improvements to your home, the Johnson Heating Cooling & Plumbing team will be happy to discuss the tax credits that may be available to you. (But we’re not tax professionals, so be sure to check with yours.)

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