Take Advantage of Federal Energy Efficiency Tax Credits Before they Expire Permanently

The sweeping budget reconciliation bill passed by Congressional Republicans eliminated three long-established energy efficiency tax incentives originally enacted under President George W. Bush.  These incentives helped families and businesses lower energy bills, improved housing affordability, made homes and buildings more comfortable, supported local construction activity, and reduced pollution.

What Was Cut?

• 25C Energy Efficient Home Improvement Credit,
• 45L Energy Efficient New Home Credit, and
• 179D Energy Efficient Commercial Building Tax Deduction.

Good News: You Can Still Claim These Tax Credits, But Time is Running Out

Thankfully, the incentives don’t end immediately. There is still time to take advantage of these tax incentives before they expire permanently!

Upgrades to Existing Homes: 25C Energy Efficient Home Improvement Credit

This credit has a track record of reaching over 20,000 Utah homeowners annually. If you hurry, you can still access this credit for those home energy upgrades that you’ve been putting off. The 25C Energy Efficient Home Improvement Credit can be claimed by homeowners for energy-efficient upgrades to existing homes, including the following upgrades:

• Energy efficient windows and doors,
• Improved insulation and air sealing,
• Replacement of heating and cooling systems and water heaters with energy efficient models,
• Electrical panel/service upgrades that are needed for upgraded heating/cooling systems or water heating.

All upgrades are required to meet specific energy efficiency standards. The maximum credit is $1,200 for weatherization upgrades (insulation, air sealing, windows and doors) and upgrades to heating/cooling systems or water heaters are eligible for an additional credit of $2,000. The maximum credit is $3,200 per home. This credit can be taken for upgrades installed by December 31st, 2025.  

Tax credit resources:

• IRS Guidance: https://www.irs.gov/credits-deductions/home-energy-tax-credits
• Rewiring America: https://homes.rewiringamerica.org/federal-incentives/25c-heat-pump-tax-credits

While you’re at it, check out these local utility rebates for home energy upgrades from Rocky Mountain Power’s Wattsmart Homes program and Enbridge Energy’s ThermWise Weatherization Rebates program.

Energy Efficient New Home Construction: 45L New Energy Efficient Home Credit

The 45L New Energy Efficient Home Credit pushes for building super-efficient homes from the get-go, which means lower energy bills and a smaller emissions footprint for new residential construction. To be eligible for this credit, home builders must construct homes to meet:

• the latest ENERGY STAR standard for new construction (for a credit of $2,500 per home), or
• the latest Zero Energy Ready Home standard (for a credit of up to $5,000 per home).
• Multifamily housing that meets the same standards is also eligible for this incentive at $500 to $1,000 per unit for meeting the respective standards listed, with much higher incentives if prevailing wages are met for construction of the properties.

According to ACEEE, these credits are estimated to deliver homeowners an average of $20,000 per home over the 45-year life of the home, while cutting enough peak energy demand equal to three large 600 megawatt power plants! This credit applies to homes/multifamily housing projects that are “acquired” (purchased or rented) by a person from the contractor before July 1st, 2026.

Tax credit resources:

• IRS Guidance: https://www.irs.gov/credits-deductions/credit-for-builders-of-energy-efficient-homes
• ENERGY STAR Guidance: https://www.energystar.gov/about/federal-tax-credits/ss-45l-tax-credit-home-builders

Utah’s utilities provide additional financial incentives for highly efficient new residential construction through the Rocky Mountain Power Wattsmart New Homes program and the Wattsmart Multifamily program, as well as the Enbridge Energy ThermWise Builder Rebates program.

Energy Efficient New Commercial Buildings or Major Retrofits: 179D Energy Efficient Commercial Buildings Deduction

The 179D  Energy Efficient Commercial Buildings Deduction is all about making commercial buildings greener, which can mean big energy savings for businesses and a boost to their bottom line. The deduction can be used for new or retrofitted commercial buildings, and can cover costs associated with:

• Interior lighting systems,
• Heating, cooling , ventilation, and hot water systems, or
• Energy efficient building envelopes.

For eligible buildings, the deduction is

• $0.50 per square foot for a building with 25% energy savings as compared to the ASHRAE Standard 90.1-2007
• Plus $0.02 per square foot for each percentage point of energy savings above 25%
• Up to a maximum of $1.00 per square foot for a building with 50% energy savings
• For projects that meet prevailing wages and apprenticeship requirements, the maximum deduction is approximately 5 times larger.

Non-taxable entities, such as faith communities, schools, non-profit organizations are eligible for this deduction by passing the value of the credit to “designers”, including architects, engineers, contractors, and other designers of energy-efficient systems in the building. This deduction is available for projects starting construction before July 1st, 2026.

Tax deduction resources:

• IRS Guidance: https://www.irs.gov/credits-deductions/energy-efficient-commercial-buildings-deduction
• U.S. Department of Energy: https://www.energy.gov/eere/buildings/179d-energy-efficient-commercial-buildings-tax-deduction

Don’t forget to utilize these energy efficiency rebates for commercial buildings from the Rocky Mountain Power Wattsmart Business program and the Enbridge Energy ThermWise Business Rebates program.

Note: This article provides general information about energy efficiency tax credits and is not intended to be a substitute for professional tax advice. While I’ve made every effort to ensure the accuracy of the information presented, tax laws can change, and their application varies based on individual circumstances. I strongly recommend consulting with a qualified tax professional before making any purchasing decisions or filing your taxes to ensure you receive the maximum benefit and comply with all tax regulations.