Maximizing the Energy Efficient Home Improvement Tax Credit (25C )

Question

Does the 25C Energy Efficient Home Improvement Tax Credit limit the number of taxpayers that can claim a tax credit on the same equipment/labor?

Does the heat pump credit apply to the outdoor heat pump unit as well as the indoor air handlers, or does this need to be itemized as the credit only applies to the actual heat pump (outdoor unit)?

Ex. 1: Two cohabitating taxpayers (filing single) both pay 50% of the cost of installing $20,000 worth of equipment/labor for heat pumps and mini split air handlers. They each claim 30% of $10,000 (maxed out at $2000) on their 2023 tax return. Is this compliant?

Ex. 2: The same two taxpayers install additional mini-split air handlers in 2024 that connect to the same heat pump (no upgrade or change on the outdoor unit), totaling $10,000 in equipment/labor. They each claim 30% of $5,000 on their 2024 tax return. Is this compliant?

KeriC · Accepted Answer

Regarding example #1:

The IRS doesn't specify using the credit on multiple individual returns, but as long as each individual pays a share, lives in, and owns the home, they should qualify to take the credit. Please keep in mind that the credit equals 30% of certain qualified expenses so between the two separate tax returns, the credit should not exceed a total of $2000. If the expense and credit are being split 50/50, you would each claim a credit of $1000. If you were to each claim $2000 for the credit, the IRS would likely disallow the credit for one or both of you in the event of an audit.

Regarding example #2:

Qualified improvements include new heat pumps. If the actual heat pump itself was not newly installed, the criteria for the credit would not be met.

Source:

https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit#:~:text=You%20can%20claim%20the%20maximum,credit%20to%20future%20tax%20years.

MatthewD · Accepted Answer

Hi,

If you own a home with another taxpayer, you could technically claim your share (not the whole cost) of the Energy Credit.  For example, two home owners own a home 1/2 and 1/2. Split the total costs by 1/2 and claim that amount. The credit is based on a percentage of the cost. You may need to alter the amounts on your return, so the software calculated $1,000 each.  The outdoor unit and the air handler would be considered the same unit and do not qualify for two separate units and credits.

In your example 1, each taxpay cannot take a full credit. They can only take 1/2 the credit.

In example 2, you cannot take an additional credit on the same piece of equipment, even though it is improving the original heat pump. The credit is limited to $2,000 of the original installation.