Understanding Tax Credits When Replacing Windows and Doors

Understanding the Inflation Reduction Act: Tax Credits for Replacing Windows and Doors

The Inflation Reduction Act (IRA), signed into law in 2022, has become one of the most significant climate and energy bills in U.S. history. Not only does it aim to reduce inflation, but it also provides incentives for households to improve energy efficiency—ultimately lowering energy costs while reducing carbon emissions.

One of the more accessible benefits of the IRA involves tax credits for upgrading your home’s energy efficiency, including the replacement of windows and doors. If you're considering replacing your windows or doors to save on energy bills and make your home more sustainable, the IRA offers some financial support through tax credits. However, there’s a lot of misunderstanding around these requirements and how specifically homeowners in Nashville, Franklin, Brentwood, or Murfreesboro can take advantage. In the article below we will demystify the confusion surrounding these credits and what you should know when replacing your windows or entry doors.

The Energy Efficiency Tax Credit: A Quick Overview

The Inflation Reduction Act revamped the Energy Efficient Home Improvement Credit, which is now available under Section 25C of the tax code. This credit is designed to help homeowners reduce the upfront cost of making energy-efficient upgrades to their homes, such as replacing old windows and doors, among other improvements.

What’s Covered by the Credit?

The IRA provides a tax credit of up to 30% of the total cost for certain energy-efficient home upgrades, which include:

Windows
Doors
Insulation
Roofing
HVAC systems

Specifically for windows and doors, the credit applies to the cost of the replacement, including installation, if the new windows or doors meet applicable energy-efficient standards. At Wallaby Windows of Nashville, our team is here to help guide you through those standards to help you understand your options and how to take advantage of these rebates.

Tax Credit for Windows and Doors: Key Details

1. Up to $600 Per Year

Under the Inflation Reduction Act, homeowners can claim up to $600 per year for improvements like replacing windows and doors. However, the total credit for windows and doors combined (as part of the broader "energy-efficient upgrades") cannot exceed this limit annually.

2. 30% of Total Cost

You can claim 30% of the total cost of the replacement windows and doors, including both materials and installation costs. For example, if you replace your windows with energy-efficient options costing $3,000, you could potentially claim a $900 tax credit.

3. Energy Star and Performance Requirements

To qualify for the tax credit, your new windows and doors must meet strict specific energy performance standards as determined by the US Department of Energy. Generally, this means the products must be Most Efficient Energy Star Certified.

https://www.energystar.gov/products/res_windows_doors_skylights/key-product-criteria

Energy Star is a label that identifies products meeting certain energy efficiency criteria, so if you see this label, you're in the right direction. Currently, the Nashville area is located within the South Central zone, requiring a very high performing window or door that meets the below standards to qualify as Most Efficient:

Climate Zone	U-Factor	SHGC
South-Central	≤ 0.20	≤ 0.23

*Products must meet this criteria to be eligible for federal tax credits.

The important thing to understand is that an Energy Star certified window is not what assures your eligibility to receive said tax credits but rather the specific performance ratings must meet or exceed those criteria.

Additional Benefits and Savings

In addition to the federal tax credit, many states and local utilities offer rebates or additional incentives for energy-efficient home upgrades. It’s worth researching local programs to maximize your savings. These combined incentives can lower your overall upfront costs and help make home upgrades more affordable.

Other Energy-Efficiency Incentives from the IRA

The Inflation Reduction Act provides other incentives to further reduce the cost of energy-efficient home improvements, including:

Home Energy Performance-Based Rebates: If you make comprehensive energy-efficient upgrades to your home, you may qualify for even larger rebates based on how much energy you save. These rebates can be used for more extensive renovations, like insulation, air sealing, and efficient heating and cooling systems.
High-Efficiency Electric Home Rebate Program: For low- and moderate-income households, there are rebates available to replace fossil fuel-powered appliances with electric versions, such as heat pumps and electric stoves.

How to Take Advantage of the IRA Tax Credits

To claim the tax credit for replacing windows and doors under the IRA, follow these steps:

Choose Energy-Efficient Windows and Doors: Make sure the products are Energy Star certified and meet other performance standards.
Keep Your Receipts: You’ll need to provide documentation of the total cost of the windows and doors, including installation.
File Your Taxes: When it’s time to file your taxes, use IRS Form 5695 (Residential Energy Credits) to claim the credit. This form will allow you to calculate your credit and submit it with your tax return.

Conclusion

The Inflation Reduction Act makes it easier and more affordable for homeowners to improve their home’s energy efficiency, including through the replacement of their windows and exterior entry doors. With a tax credit of up to 30% of the total replacement cost (up to $600 annually), replacing inefficient windows and doors can provide long-term savings on energy bills while also helping the environment. However, it’s going to take a much higher performing window than years past in order to qualify.

And remember, this is just one of the many benefits available through the IRA! Make sure to explore all the opportunities to lower your energy costs and make your home more eco-friendly.

Would you like more information on how to choose the right energy-efficient windows and doors? Or tips on maximizing your IRA savings? We’re here to help!