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How New Yorkers Are Using IRA Tax Credits

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Nearly 200,000 New Yorkers Claimed IRA Tax Credits on Home Energy Upgrades in 2023

Since the Inflation Reduction Act (IRA) was signed into law on August 16, 2022, it has stimulated billions in clean energy investment, from scaling up domestic manufacturing of technologies like solar panels and wind turbines to lowering the cost of buying electric vehicles.

For homeowners, the IRA increased and extended two home energy tax credits: the residential clean energy tax credit and energy efficient home improvement tax credit. Both IRA tax credits can cover up to 30% of the cost on eligible home energy upgrades, such as heat pumps, solar panels, and insulation through 2032[1].

New data from the Internal Revenue Service (IRS) outlines how much American households received in IRA tax credits during 2023 – the first full year the IRA was in effect. In New York State, 189,680 households claimed over $374 million in home energy tax credits on their 2023 federal tax returns[2]. This amounts to roughly $1,972 per household in cost savings on a variety of energy-saving home improvements.

Read on for a more in-depth look at how New Yorkers and American households are using IRA tax credits to lower the cost of home energy upgrades, plus tips on making the most of IRA incentives for your home improvements.

New Yorkers Claimed $241 Million in Residential Clean Energy Tax Credits

In 2023, 43,100 New York households claimed the residential clean energy tax credit. This amounted to more than $241 million in cost savings on clean energy technologies, or $5,611 per household.

On the national level, solar panels were the clean energy technology claimed by the most households, followed by solar water heaters (data is not available on the state level). Other eligible clean energy technologies include:

The residential clean energy tax credit is nonrefundable, but it can be carried over if the credit amount exceeds the amount you owe in tax. In fact, more than 600,000 households in the U.S. are carrying forward their IRA tax credit from 2023 to 2024[2].

$132 Million in Energy Efficient Home Improvement Tax Credits for New York Households

The IRA expanded the maximum amount households can claim with the energy efficient home improvement credit from $500 to $3,200, depending on the upgrade types and project costs[3]. It also eliminated the lifetime limit, meaning households can now claim the IRA tax credit for multiple projects completed over multiple years.

In 2023, 153,720 New York households claimed more than $132 million in energy efficient home improvement credits. This translates to an average household savings of $860 on the cost of home efficiency improvements.

Nationally, insulation and air sealing were the most common type of efficiency improvement claimed by taxpayers, followed by energy-efficient windows and skylights. Additional energy-efficient equipment and upgrades that qualify for the IRA tax credit include:

The energy efficient home improvement credit is nonrefundable, and excess credits may not be carried over to future tax years.

How to Make the Most of IRA Residential Energy Tax Credits

IRA tax credits are helping New Yorkers save on the cost of clean energy equipment and home energy upgrades. Before getting started on home energy improvements, understanding IRA tax credit limits and how to leverage New York State incentives could help achieve greater savings on a project and energy bills for years to come.

Understanding IRA Tax Credit Limits

Whereas the residential clean energy tax credit is a straightforward 30% calculation of eligible project costs, with the option to carry credits forward to future tax years, the energy efficiency tax credit is more complicated. The maximum credit amount of $3,200 represents a combination of several home improvements, as there are specific credit limits set for different types of upgrades and equipment.

IRA tax credits on air source heat pumps and heat pump water heaters are capped at $2,000 per year, while electric panel upgrades are capped at $600 per year. Meanwhile, home envelope improvements are capped at $1,200 per year, which includes the following upgrades:

The IRS considers tax credit eligibility based on the tax year the improvements were installed. For homeowners considering multiple home energy projects, being strategic about the timing of installations could allow for greater cost savings.

For example, a family planning to switch their home to a heat pump water heater and air source heat pumps could only claim $2,000 if the equipment was purchased and installed the same year. Alternatively, installing air source heat pumps one year, followed by a heat pump water heater the next year, could allow the family to claim $2,000 on each project.

Brush Up on New York State Incentives for Home Energy Improvements

It may be possible to combine IRA tax credits with New York State incentives, including tax credits, rebates, and low-cost financing to make home energy upgrades more affordable.

To start, getting a no-cost energy assessment can detect where a home is wasting energy and determine where home improvement dollars would be best spent.

Home efficiency upgrades are eligible for both IRA tax credits and funding through several New York State programs. The Comfort Home program offers incentive packages between $1,000 to $4,000 for air sealing, insulation, and window upgrade packages.

IRA rebates through the EmPower+ program can cover up to $1,600 in air sealing, insulation and ventilation costs for income-eligible New Yorkers. Note that EmPower+ funds may also be used for electrical service and wiring upgrades, heat pump water heaters, and heat pumps.

New Yorkers can lower the cost of solar energy systems and geothermal heat pumps by combining New York State income tax credits with IRA tax credits. The State tax credit can cover 25% of the project cost for either technology, capped at $5,000. It’s possible to carry over any excess credit amount for up to five years.

Additionally, solar and geothermal heat pump projects could qualify for upfront incentives from New York State to lower the purchase and installation costs. Both NY-Sun residential solar incentives and NYS Clean Heat rebates Link opens in new window - close new window to return to this page. for geothermal heat pumps vary by project size and location. Homeowners can work with a NYSERDA-qualified contractor to see what they qualify for before moving forward with a project.

Learn More: NYS Guide to Inflation Reduction Act Savings

More on IRA-Eligible Home Improvements

Read on for more insights and tips for using efficient, all-electric equipment in your home and lowering the cost with IRA tax credits and rebates.

Footnotes

  1. Residential Clean Energy Credit. Internal Revenue Service. (n.d.). https://www.irs.gov/credits-deductions/residential-clean-energy-credit Link opens in new window - close new window to return to this page. Back to content
  2. Soi tax stats - clean energy tax credit statistics. Internal Revenue Service. (n.d.-b). https://www.irs.gov/statistics/soi-tax-stats-clean-energy-tax-credit-statistics Link opens in new window - close new window to return to this page. Back to content
  3. Energy Efficient Home Improvement Credit. Internal Revenue Service. (n.d.-a). https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit Link opens in new window - close new window to return to this page. Back to content

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