A home energy audit could produce lower utility bills and a tax credit

9 months ago 209

An energy audit might find that adding insulation can make your home more comfortable and energy efficient. The formal inspection also could get you a tax break. audit could produce lower utility bills and a tax credit. (Photo via Unsplash+ in collaboration with Getty Images)

In extreme weather, which happens year-round and more frequently nowadays, homeowners do their own residential energy audits.

Depending on the season, we stand in hot or cold spots in our houses and try to figure out (1) why it's happening, and (2) how to remedy it.

If you're finding yourself doing this more often, and finding more places in your home that appear to be bumping up your cooling or heating bills, maybe it's time for a home energy audit.

Uncle Sam will even help you pay for it. A home energy audit is one of the myriad clean energy tax credit possibilities in the Inflation Reduction Act.

Tax benefit of a home energy audit: The tax break for a qualifying home energy audit is a maximum of $150. That dollar figure is calculated as 30 percent of the cost, so you'd get the $150 tax break for a home energy audit that costs $500.

The $500 dollars that will get you the maximum tax credit for a home energy audit exceeds the national average of $415 for the service. But the United States is a big country, so depending on where you live, expect to pay anywhere from $208 to $675 for the inspection.

As for the $150 credit, yes, it's not that much. But it's a tax credit, so the energy audit benefit will reduce your tax liability dollar-for-dollar, up to the maximum credit amount since it's not refundable.

But even better, the audit could help you fix the bad energy spots that are sucking hot or cold air out of your house (or letting it in). Those repairs, some of which also might qualify for tax breaks, will lower your utility bills.

The Internal Revenue Service last week issued Notice 2023-59 to provide homeowning taxpayers guidance on what requirements a home energy audit must meet for tax credit claiming purposes.

That notice's number earns this weekend's By the Numbers recognition.

Audit rules to claim the credit: A key requirement discussed in the notice is the definition of home energy audit. The notice says it is an inspection and written report in connection with the U.S.-located dwelling that taxpayers own or use as their principal residence.

The examiner also must meet home energy auditor certification or other requirements specified by the Secretary of the Treasury or her delegate. The bottom line here is that the audit done by your brother-in-law who works on a roofing crew won't meet the tax credit claim qualifications.

Finally, the residential audit conducted by a certified inspector must identify the most significant and cost-effective energy efficiency improvements with respect to such dwelling unit, including an estimate of the energy and cost savings with respect to each such improvement.

IRS Notice 2023-59 has more on the home energy audit guidelines. So does IRS Fact Sheet 2022-40.

The U.S. Department of Energy video below also provides an overview of a home energy assessment.

Obtaining a home energy audit: Many local utilities provide home energy audits. Check with yours and make sure that it is aware of and its inspectors meet and follow the Inflation Reduction Act's guidelines.

Private firms also provide home energy audits. Many keep up with the Internal Revenue Code changes and use that as a marketing tool. Verify their tax credit knowledge promotion.

You also can check the Residential Energy Services Network's directory to find certified professional energy assessors near you.

In addition, look into the U.S. Department of Energy's Home Energy Score and Home Performance with Energy Star programs to see if energy assessors associated with those programs are near you.

Vetting your energy auditor: As per the tax credit requirement in Notice 2023-59, the Department of Energy (DoE) says to ensure that the energy auditor holds any of the following credentials —

The American Society of Heating, Refrigerating, and Engineers Building Energy Assessment Professional certification;
The Association of Energy Engineers Certified Energy Auditor certification;
The Building Performance Institute Home Energy Professional Energy Auditor certification; The Residential Energy Services Network Home Energy Rater certification; and/or
Any other third-party certification recognized or deemed equivalent by the U.S. Department of Energy.

Don't skip due diligence: Finally, before signing a home energy audit contract, the DoE recommends that you —

Get several references and contact them all. Ask if they were satisfied with the work.
Call the Better Business Bureau and ask about any complaints against the company.
Make sure the energy auditor uses a calibrated blower door test.
Make sure they do thermographic inspections or contract another company to conduct one.
Ask what other tools they use in their assessments and whether they offer a U.S. Department of Energy Home Energy Score report as part of their assessment.

Other home energy tax credits: Earlier, I mentioned in passing that other home repairs that increase energy efficiency also might qualify for tax breaks.

That's the good news. The bad news is that, like a lot of tax matters, the law governing them is convoluted.

The total eligible home energy tax credits are many and varied. Depending on the particular improvement, they also are subject to dollar limits.

The overall total limit for an efficiency tax credit in one year is $3,200. But that's also divided into credit categories with smaller limits. So the maximum credit you can claim each year, with further caps within the categories, are:

$1,200 for any combination of what are known as home envelope improvements, such as certain doors ($250 per door and $500 total), windows ($600) and home energy audits ($150); and
$2,000 per year for qualified heat pumps, biomass stoves or biomass boilers.

Planning your credit-worthy improvements: Given the way the annual aggregate limits are structured, it may be to your tax advantage to spread your home energy improvements over a few years to maximize the tax credits.

You have a lot of years in which to do that. The Inflation Reduction Act's federal income tax credits for energy efficiency home improvements will be available through 2032.

A good first step could be that tax-credit-eligible home energy audit to help you prioritize and schedule additional home energy upgrades over the coming years.

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