The Ultimate Guide to Federal Energy Tax Credits

There tends to be a lag between new technology and adoption by the masses. Take cell phones for example. Early in their infancy, cell phones cost thousands of dollars, making them only affordable to the richest of the rich. 

Fast forward nearly forty years after the first cell phone was invented, and most people could not envision a world without them.

While adopting renewable energy and green technology may feel like it’s following the same trend, many of these new technologies are more affordable than people think.

Thanks to the Inflation Reduction Act, new federal tax credits for solar and energy-efficient technology have made upgrading your HVAC system, car, and energy source more affordable than ever. 

So if you are looking to upgrade to new EnergyStar equipment, install solar panels, or even drive a new electric or hybrid vehicle this year, learn how you can use energy tax credits to your advantage. 

How Do Energy Tax Credits Work?

Federal energy tax credits are designed to make renewable and energy-efficiency technology more affordable for the average homeowner. 

Tax credits are dollar-for-dollar reductions on your outstanding tax liability paid annually to your local, state, or federal government. While energy tax credits don’t give you liquid cash to use as a downpayment for a new solar panel or EV, they allow you to write off the purchase on your taxes to reduce your tax liability significantly. 

For example, let’s say you purchase a new solar panel worth $12,000 with a 30% tax credit. While that $4,000 credit may not be available when you buy the solar panel, it can be used to reduce your overall tax liability by $4,000. 

In turn, your purchase will allow you to pay less in taxes at the end of the year, giving you some money back at the end of the year. And if your net liability reaches zero, you can rollover any unused tax credits to the next year. 

The idea is to help offset the burden of new energy-efficiency upgrades and to spur more investment in this technology, making it more affordable over time. 

Now that you have a general understanding of how tax credits work let’s explore what tax credits are available to homeowners like you.


Energy tax credits lower your tax burden, giving you more money back at the end of tax season to offset the cost of a new energy upgrade, such as a solar panel or heat pump.

The Home Solar Tax Credit

The most popular tax credit is the solar tax credit, which was extended through 2034 under the Inflation Reduction Act. According to the new law, all solar panels installed for the first time on a qualifying home can qualify you for a 30% dollar-for-dollar tax credit to be used during your next tax filing. 

The tax credit differs depending on the year you installed your solar panel:

Does My Dwelling Qualify for a Home Solar Tax Credit?

The federal solar tax credit is also limited to people who purchase their solar panel with cash and not through a lease program.

Other stipulations limit the tax credit to solar panels installed on US residential homes and to equipment installed for the first time.


Solar tax credits worth 30% are available for homeowners who install a solar panel on a qualifying dwelling. This credit can be applied to installations made retroactively. 

EV Tax Credits and Charger Tax Credits

Another great way to upgrade to the Clean Energy Life is by purchasing a new electric or hybrid vehicle. Thanks again to the Inflation Reduction Act, tax credits for “clean cars” were increased to $7500 through 2032. 

Clean cars are defined as anything that uses an electronic battery, including most hybrid cars and hydrogen fuel cell cars with a battery capacity of 4-7 kilowatt hours. 

Beginning in 2024, users will even have the ability to offset the credit at the time of purchase, transferring the credit to the dealer, thus lowering the physical sticker price. 

A separate $4,000 tax credit is also available for previously owned clean cars (under 2 years old) with similar stipulations. 

Some limitations apply, such as:

Another tax credit new EV owners may leverage is the Alternative Fuel Refueling Property Credit. This tax credit allows homeowners to write off their new electric charging station for a $1,000 tax credit. 

So if you purchase a new EV worth $30,000 in just one year, you could knock the sticker price down to $23,500 (less than a Toyota Corolla) and get your new charging station installed for virtually nothing. Plus, you don’t have to pay for gas!


New EVs and clean car purchases qualify for up to a $7,500 tax credit and “previously owned” EVs for a $4,000 tax credit. In 2024, this credit can be applied at the point of purchase to the dealer. Some restrictions do apply.

More Energy Tax Credits Available Under the Inflation Reduction Act

The Inflation Reduction Act has also extended major tax credits for many home appliances and heating equipment, including battery storage technology, to 2034. Read below to see what equipment qualifies. 

Residential Clean Energy Credit

The Residential Clean Energy Credit is a 30% credit for qualifying equipment that uses renewable technology (solar, wind, geothermal) or fuel cell technology. The credit was extended to 2034, decreasing from 30% to 26% in 2033 to 22% in 2034. 

The following equipment qualifies for the credit:

Unfortunately, the act did eliminate a previous credit for biomass water heaters and furnaces.

Energy Efficient Home Improvement Credit

The amended Energy Efficient Home Improvement Credit increased the lifetime credit for qualifying home improvement purchases to $1200 annually for the following purchases:

The High-Efficiency Electric Home Rebate Program

In addition to tax credits, the Inflation Reduction Act also provides a federal rebate program for low-income families who make less than 150% of the total median income of where they live. 

This rebate is available for the following purchases:

How to Apply for Federal Energy Tax Credits

To apply for a federal tax credit for any qualifying purchasing, you’ll need to fill out Form 5695

Form 5695 is the standard form used for all federal tax credits that were extended under the Inflation Reduction Act. Work with your tax preparer to fill out the form and submit it with the rest of your return to lower your tax liability for the filing year. 

Thanks to a new push toward clean and renewable energy, the federal government has made it easier to afford new energy-efficiency upgrades, including solar panels, HVAC systems, and EVs. 

Powering your home with renewable energy and implementing energy-efficiency upgrades will increase your savings over time and help you reduce your carbon footprint. 

So if you want to upgrade to The Clean Energy Life, there’s never been a better time than now. 

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