Energy Efficient Home Improvement Credit: What You Need to Know Before It Expires

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If you’re a homeowner in Salem or beyond, looking to make your home more comfortable and energy efficient, now is the time to act. The energy efficient home improvement credit is a valuable federal tax break that helps offset the cost of upgrades designed to reduce energy consumption and lower your utility bills. But with key credits expiring soon, understanding how this credit works and which improvements qualify is essential to maximizing your savings.

What Is the Energy Efficient Home Improvement Credit?

The energy efficient home improvement credit allows you to claim 30% of qualified expenses on certain home upgrades made to your principal residence, starting January 1, 2023. This credit covers a wide range of energy-saving improvements, including heat pumps—such as natural gas, air source, and geothermal heat pumps—insulation materials, air sealing materials, efficient windows and doors, and more. The maximum annual credit is $1,200 for general home improvements and up to $2,000 for specific items like heat pumps, allowing you to save up to $3,200 per year.

This credit is part of a larger push to promote residential clean energy and energy efficiency, helping homeowners reduce their carbon footprint while enjoying lower energy costs.

Recent Changes and Expiration Dates

Thanks to the Inflation Reduction Act, the energy efficient home improvement credit was extended through 2032. However, recent legislation known as the One Big Beautiful Bill Act has accelerated the expiration of these valuable tax credits to December 31, 2025. This means the window to claim credits for improvements like natural gas heat pumps, oil furnaces, or efficient hot water boilers is closing fast. Planning your energy efficient upgrades now ensures you don’t miss out on these benefits.

Why Energy Efficient Home Improvements Matter to Homeowners in Oregon

Many homes in the Willamette Valley, including Salem and surrounding areas, were built before modern energy efficiency standards. They often have leaky ducts, outdated heating systems, and insufficient insulation, which drive up energy costs and reduce comfort—especially during extreme weather events. Upgrading to energy efficient systems such as heat pumps or improving your home’s insulation and air sealing can make a noticeable difference in comfort and energy bills.

Conducting a home energy audit with a trusted home energy auditor can pinpoint where your home loses energy and help you prioritize qualifying home improvements that maximize your tax credit and utility savings.

Qualifying Improvements and Eligible Expenses

To take full advantage of the energy efficient home improvement credit, it’s important to know which improvements qualify. Eligible expenses include both materials and labor costs for installing qualifying property in your existing home or principal residence. Here are some key categories:

• Heat pumps: air source, geothermal, natural gas heat pumps, and heat pump water heaters
• Insulation materials and air sealing materials to reduce heat loss
• Central air conditioners with high efficiency ratings
• Electric panel upgrades needed to support clean energy systems

Additionally, home energy audits for your principal residence may qualify for a tax credit of up to $150, helping you identify the best qualifying improvements. Keep in mind that labor costs for installing building envelope components like windows, doors, and insulation generally do not qualify, but labor for installing residential energy property such as heat pumps does.

How to Claim the Energy Efficient Home Improvement Credit

To claim the credit, you must file IRS Form 5695 with your tax return for the year the property is installed—not just purchased. The credit applies only to your primary residence in the United States; it does not apply if you’re an other property owner renting out the home or using it solely for business. If you use your home partly for business, the credit may be reduced based on the percentage of business use.

When calculating your credit, remember to subtract any subsidies, rebates, or financial incentives you received for the improvements, as these reduce your qualified expenses. Utility rebates for clean energy property usually must be subtracted, but state energy efficiency incentives might not.

The energy efficient home improvement credit is nonrefundable, meaning it can reduce your tax bill to zero but won’t result in a refund if the credit exceeds your tax liability. Also, excess credit amounts cannot be carried forward to future tax years.

Local Support and Financing Options

Santiam Heating & Sheet Metal is ready to help you navigate the process of qualifying for tax credits and choosing the right energy efficient upgrades for your home. Whether you’re considering a natural gas heat pump or upgrading your oil furnaces, expert guidance can ensure your improvements meet eligibility requirements.

We also offer financing options to make energy efficient home improvements more affordable. Combining financing with tax credits and potential home energy rebates can help you manage upfront costs while enjoying long-term savings.

Conclusion

The energy efficient home improvement credit is a powerful tool to help you upgrade your home, reduce energy costs, and increase comfort. But with the accelerated expiration of key tax credits at the end of 2025, now is the time to act. Schedule a free in-home estimate, explore qualifying improvements, and take advantage of this valuable credit while it’s still available.

At Santiam, we’re committed to helping you make smart, practical energy improvements that respect your home and your budget. Don’t wait until your existing system breaks down or energy costs rise further—start your energy efficient home improvement journey today and enjoy the benefits for years to come.

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