IRS Releases Energy Efficient Home Improvement Credit (Section 25C) Qualification Requirements for Home Energy Audits
On August 4, 2023, the Internal Revenue Service (IRS) released IRS Notice 2023-59, which outlines the requirements for taxpayers to claim the “Energy Efficient Home Improvement Credit” for home energy audits under section 25C of the Internal Revenue Code. The notice, Guidance on Requirements for Home Energy Audits for Purposes of the Energy Efficient Home Improvement Credit under Section 25C, builds upon the Treasury Department’s and IRS’ Fact Sheet, which addresses “frequently asked questions about energy efficient home improvements and residential clean energy property credits.”
The Energy Efficient Home Improvement Tax Credit, authorized through President Biden’s Inflation Reduction Act, provides taxpayers with financial incentives to obtain a home energy audit allowing for expert direction for energy-efficient upgrades tailored to one’s particular home needs.
The home energy audit tax credit offers 30% of the cost for a home energy audit, up to $150 per year. A home energy audit is just one of the many efficiency or home energy system improvements homeowners can claim using the 25C credit. The combined value of the home energy audit credit and any other credits claimed under 25C are subject to a yearly limit of $1,200 for qualifying expenditures ($3,200 if expenditures are for heat pumps, heat pump water heaters, or biomass stoves or boilers).
To ensure a homeowner is able to take advantage of the tax credit for the 2024 tax season, the following requirements must be followed:
- Include an inspection and written report that identifies the most significant and cost-effective energy-efficiency improvements with respect to the home, including an estimate of the energy and cost savings with respect to such improvement, and
- Be conducted and prepared by a home energy auditor.
In addition, starting on January 1, 2024, the home energy audit must follow the requirements set forth in IRS Notice 2023-59, which includes:
- The inspection must be conducted by a Qualified Home Energy Auditor, defined as an individual who is certified by one of the Qualified Certification Programs at the time of the audit, or under the supervision of a Qualified Home Energy Auditor;
- The written report must be prepared and signed by a Qualified Home Energy Auditor, be consistent with industry best practices, and include:
- The Qualified Home Energy Auditor’s name and relevant Employer Identification Number (EIN) or other type of appropriate taxpayer identifying number, if the auditor does not have an EIN;
- An attestation that the Qualified Home Energy Auditor is certified by a Qualified Certification Program; and
- The name of such Qualified Certification Program.
IRS Notice 2023-59 also provides a transition rule for audits conducted during the 2023 tax year. For such audits, a home energy auditor is not required to be a Qualified Home Energy Auditor, and as long as taxpayers paid or incurred expenses for a home energy audit that meets the requirements of section 25C, they can qualify for the credit. The Treasury Department and IRS will provide the public an opportunity to review and comment on the guidance when regulations are proposed.
Home Energy Audit Qualified Certification Programs
Today, DOE published the first iteration of the Qualified Certification Programs list, which the DOE Building Technologies Office (BTO) will amend as appropriate. Any certification developer or owner who is not identified on this list and believes their credentials satisfy the requirements may visit the credential recognition page to submit a new certification for consideration. BTO’s evaluation process for the Qualified Certification Programs is based on the industry input included in DOE’s Single-Family and Multifamily Energy Auditor Job Task Analyses.
What is a Home Energy Audit?
A home energy audit (or assessment) is a comprehensive evaluation of a home’s energy performance that trained experts conduct, not too dissimilar from a car inspection. Home energy auditors inspect homes, collect, and analyze data, and provide residents with a written report that summarizes their findings. It is the first step that DOE and countless other building energy industry professionals recommend consumers take to improve their home’s energy performance, because home energy audits generate prioritized punch lists of the most significant and cost-effective energy-efficiency improvements residents can make to their homes – including an estimate of the energy and cost savings every individual improvement could provide.
Why Do Home Energy Audits Matter?
Home energy upgrades must be properly sequenced to ensure the expected energy and cost savings are fully realized, and home energy audits can chart the pathway. The sequence of energy upgrades is essential because the optimal performance of some building technologies depends on the quality of other aspects of the home. For example, the most energy-efficient heat pump on the market will not cool or heat homes as intended if a significant portion of the air it conditions escapes through leaky doors, windows, or walls. Implementing the recommendations provided through completing a home energy audit would not only improve the airtightness of that home before installing that heat pump, but it would reveal the precise location(s) of the home’s leak(s) and prescribe a menu of prioritized actions residents could take to remedy or eliminate the issue. Oftentimes, home energy audits determine that the most invasive and expensive upgrades, like full window replacements, aren’t necessary to substantially improve a home’s energy efficiency, making the home audit step an essential one on the road to savings.
How to Find Home Energy Auditors
DOE’s infographic on home energy audits has information on where to find home energy auditors and what to expect from a home energy audit. More information about what else qualifies for the section 25C Energy Efficient Home Improvement Credit can also be found on DOE’s Making Our Homes More Efficient: Clean Energy Tax Credits for Consumers webpage.