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Homeowners seeking an insulation tax credit don't need to look further than the IRS' most recent Energy-Efficient Home Improvement Credits. Expanded as a part of the Inflation Reduction Act of 2022, homeowners can now claim a 30% tax credit on Energy-Efficient Home Improvements up to $1,200.

Learn more about the latest Energy-Efficient Home Improvement Credits and how to qualify and claim them on your subsequent tax filing. You've done the hard work going green and reducing the cost of your electric bill; now let the tax credit put a bit of green back into your wallet.

Key takeaways:

• Receive a tax credit of 30%, up to $1,200 annually, on qualifying Energy-Efficient Home Improvement expenses.
• Insulation materials and systems must meet International Energy Conservation Code (IECC) standards.
• The current tax credits are available through 2032 and have no lifetime limit.

What Is the Insulation Tax Credit?

As a part of expansions to the Energy-Efficient Home Improvement Credit program, homeowners can claim tax credits on qualifying expenses. For insulation, 30% of material costs, up to $1,200, can be claimed annually so long as the insulation meets IECC standards.

How Much Is the Insulation Tax Credit for 2023 and 2024?

For 2023 and 2024, the insulation tax credit is 30% of material costs. The tax credit has an annual upper limit of $1,200 but can be reapplied for each year—there is no lifetime limit until 2032. Note that the tax credit only covers the cost of insulation materials and not labor.

The insulation tax credit for 2023 features a significant increase from the previous 10% tax credit in 2022. There are no changes planned for the tax credit in 2024; lawmakers designed it to extend until 2032.

What Insulation Qualifies for Energy Tax Credit?

Most insulation materials qualify under the Energy-Efficient Home Improvement tax credit. Common types of eligible insulation include foam board, loose fill, rolls, batts, blankets, blown fibers, mineral wool board, and spray foam.

The insulation tax credit can also be applied to certain products that limit air leaks, keeping your home insulated from the elements—a great way to lower your electric bill in the winter. If they include a manufacturer's certification statement, homeowners can obtain tax credits on weather stripping, caulk, and house wrap.

How To Claim the Insulation Tax Credit in 4 Steps

Claiming insulation tax credits as part of the Energy-Efficient Home Improvement Credit program only takes a few steps. After confirming eligibility, you must gather the proper documentation and fill out Form 5695. You can then transfer the information to your primary tax return. Let's walk through the process together in four easy steps.

1. Determine Your Eligibility

To qualify for insulation tax credits via the Energy-Efficient Home Improvements credit program, homeowners must have modified their primary home. Additionally, the home must be located within the United States and cannot be a new home; it must be an existing home.

Landlords or other property owners not residing within the home cannot claim the tax credits. You also cannot claim the credits if you use the home solely for business. Once you have confirmed your eligibility for the program, you can continue by gathering the required documentation.

Recap of eligibility requirements:

• The home must be your primary home.
• The home must be located within the United States.
• The home must be an existing home; it cannot be a new home.
• The home cannot be claimed if it is used solely for business purposes.

2. Gather Documentation

Filling out Form 5695 will require you to answer questions about the insulation you installed. As such, keeping any receipts and forms you may have received during the upgrade process is vital. The most important will be documentation showing the cost of materials.

As a reminder, the tax credit for insulation only applies to materials utilized and not labor costs. If you hire a service professional to install your energy-efficient home insulation, you need to obtain an itemized receipt showing labor costs in relation to the materials purchased.

3. Fill Out Form 5695

Once you have confirmed your eligibility and have the necessary documentation, you can complete Form 5695 (residential energy credits). Pay particular attention to sections 17 and 18, which address the Energy-Efficient Home Improvement Credit and insulation upgrades.

We recommend contacting a professional accountant for assistance if you need clarification while filling out the form.

4. Transfer the Information to Your Main Tax Return

Once you have completed Form 5695, you can submit the document as a part of your yearly tax filing. If you typically e-file your tax return, you may need to fill out a digital version of the form using your software service of choice.

Be sure information is consistent between the two forms, and keep any receipts or documentation for future records.

Insulation Rebates 

Homeowners looking into the Insulation Tax Credit program should also keep an eye on the upcoming insulation rebates available via the High-Efficiency Electric Home Rebate Act (HEEHRA). Formally known as the Zero-Emission Homes Act (ZEHA), HEENRA will offer rebates to homeowners making efficient home improvements.

Through HEEHRA, qualifying homeowners can have 100% of electrification project costs covered up to $14,000; this includes weatherization, such as insulation, with a maximum rebate of $1,600. These rebates and the process of weatherization will help you with energy efficiency year-round—and it’s a great way to keep your summer electricity bill lower during AC-heavy months.

To qualify for HEEHRA, homeowners must meet set income requirements. Homeowners with a low income, less than 80% of the area median income (AMI), qualify for a total rebate of up to $14,000. Homeowners with a more moderate income, 80%-150% of the AMI, qualify for a total rebate of up to $7,000. The $1,600 weatherization rebate is available for those installing insulation under both income brackets.

HEEHRA is still in the works, and the U.S. Department of Energy will release additional updates on the program over time. To prepare for the rebate, we recommend saving any receipts for modifications performed on your home.

HEEHRA Recap:

• Qualifying homeowners can save up to $14,000 on electrification projects.
• A $1,600 weatherization rebate is available for insulation installations.
• More information still needs to be released by the U.S. Department of Energy.

Frequently Asked Questions

Navigating the latest Energy-Efficient Home Improvement program and available insulation tax credits can feel challenging. Luckily, we're here to help. Here are answers to some of the most frequently asked questions we've received about the process.

Is Insulation a Tax Write-Off?

Insulation can be a tax write-off thanks to the Energy-Efficient Home Improvement tax credit program. From now until 2032, homeowners can write off 30% of material costs on insulation, up to $1,200 annually.

Can I Claim the Insulation Tax Credit for My Business?

The insulation tax credit found within the Energy-Efficient Home Improvement tax credit program are aimed at homeowners; they do not apply to homes that are used solely for business purposes.

Can I Claim the Insulation Tax Credit More Than Once?

Homeowners can claim insulation tax credits yearly on their taxes until 2032. There is no lifetime maximum on the program, but there is a yearly limit of $1,200.

Are There Any Income Limitations To Claiming the Insulation Tax Credit?

There are no income limitations as a part of the Energy-Efficient Home Improvement program and available insulation tax credits. However, some rebate programs, such as the upcoming High-Efficiency Electric Home Rebate Act, have income limitations.

Improve Energy Efficiency With Arbor

The Energy-Efficient Home Improvement program and available insulation tax credit are excellent ways to go green for the environment and your wallet. Use Arbor to lower your energy bill automatically and save even more of your hard-earned cash.

The folks at Abor help save customers an average of $544 per year when they switch. Link your electrical account and let the Arbor team do the hard work—the process is 100% free, there are no service interruptions, and you can cancel anytime.