Federal Energy Efficiency Incentives for Residents & Small Businesses
The federal Bipartisan Infrastructure Law (BIL) and the Inflation Reduction Act (IRA) made historic investments into energy efficiency. These opportunities will help residents and businesses save money and improve their health and comfort.
For Homeowners and Some Renters
Available Now: Expanded Tax Credits
The Energy Efficient Home Improvement Credit (25C) dramatically reduces the cost of energy efficiency upgrades for many residents. Pre-IRA, residents could deduct $500 in energy efficiency home improvements only once. Now, they annually can claim 30% of qualifying purchases—up to $3,200 every year—including $1,200 for efficiency improvements and $2,000 for qualified heat pumps.
- The Energy Efficiency Home Improvement Credit applies only to existing homes, but home builders and contractors can take advantage of the Energy Efficient New Homes Tax Credit (45L) which offers credits of up to $5,000 to build new homes Energy Star certified or Zero Energy Ready.
Residents can also claim the Residential Clean Energy Credit (25D), which offers a credit of 30% of installation costs for residential solar, wind, geothermal, fuel cells, or battery storage technology.
Coming Soon: Home Energy Rebate Programs
Each state has been allocated funding to run Home Efficiency Rebate and Home Electrification and Appliance Rebate programs. These rebates will make energy-saving home upgrades and appliances easier for residents looking to save money on their utility bills and improve home health and comfort.
The following table describes the incentive levels that can be offered to households. Please note, each state designs its own program and may have different requirements and/or income limits.
| Type of Home Energy Project | Maximum Allowed Rebate Amount Per Household Below 80% Area Median Income (AMI) | Maximum Allowed Rebate Amount Per Household Above 80% Area Median Income (AMI) |
|---|---|---|
|
Home Efficiency Project with at least 20% predicted energy savings |
80% of project costs, up to $4,000 |
50% of project costs, up to $2,000 (maximum of $200,000 for a multifamily building) |
|
Home Efficiency Project with at least 35% predicted energy savings |
80% of project costs, up to $8,000 |
50% of project costs, up to $4,000 (maximum of $400,000 for a multifamily building) |
|
Home Electrification Project Qualified Technologies (only households with an income below 150% AMI are eligible)
|
100% of project costs up to technology cost maximums; up to $14,000 |
50% of project costs, up to technology cost maximums; up to $14,000 (households with incomes above 150% AMI are not eligible) |
Source: Home Energy Rebates FAQs #23
Pennsylvania’s and New Jersey’s programs are expected to launch in early 2025. Residents seeking efficiency upgrades now should pursue some of their state’s existing programs. (See our pages on PA programs and NJ programs.)
Visit DOE’s Energy Savings Hub for more information on federal incentives for household energy improvements.
For Businesses:
Available Now: Tax Credits for Efficiency and Renewable Energy
The Energy Efficient Commercial Buildings Deduction (179D) provides a significant tax credit to new buildings that outperform the referenced code by at least 25% and retrofits that reduce energy use intensity by at least 25%.
- The IRA increased by almost three times the tax deduction amount a commercial building is eligible to receive when it invests in eligible energy efficiency practices. The maximum deduction is now $5 per square foot
- Projects must meet prevailing wage and apprenticeship requirements to get the full credit.
- For buildings owned by local governments and other tax-exempt entities, the person who designs the property is eligible to take the credit. This may allow tax-exempt entities to significantly reduce the cost of their projects.
The Investment Tax Credit for Energy Property (48) provides a tax credit for investment in qualifying fuel cell, solar, geothermal, small wind, energy storage, biogas, microgrid controllers, or combined heat and power properties.
- The base credit is 6% but rises to 30% if prevailing wage and registered apprenticeship requirements are met.
- The Investment Tax Credit for Energy Property applies to properties placed in service before 2025. For properties placed in service in or after 2025, the similar Clean Electricity Investment Tax Credit (48E) will apply.
- These credits are stackable with several bonuses for certain projects located in energy communities, serving low-income communities, and/or using domestic content. It may be possible to receive up to 70% of your investment in direct pay tax credits. An illustration of potential stacking was presented at PEDA’s February 2024 Board Meeting (see slides 13-14).
- This credit is eligible for elective pay (aka direct pay), which means that tax-exempt entities such as local governments and nonprofits can get a direct refund for the value of the credit.
Learn More:
All IRA Clean Energy Tax Provisions (White House)