It’s an idea to consider! Remember, too, that the limit for windows is $600.

Back in 2013, the IRS published Notice 2013-70 which said, in part:

Q-3: May a taxpayer carry forward unused credits to another tax year?

A-3: A taxpayer may not carry forward the § 25C credit. Thus, if a taxpayer cannot claim all or a portion of the credit in the year in which the related expenditure is treated as made, the unused amount of the credit will expire. However, a taxpayer may carry the § 25D credit forward to future tax years pursuant to § 25D(c).

Section 13301 of the Inflation Reduction Act amended IRC § 25C and section 13302 amended IRC § 25C. I didn’t see anything in either section of the IRA that changed the carryover rules for these credits.

Years ago, the IRS said in Notice 2013-70 (Q&A 8) “a taxpayer may not include the labor costs for qualified energy efficient building envelope components including a qualifying insulation material or system, exterior window, skylight, [or] exterior door.” Section 13301 of the Inflation Reduction Act is what amended Section 25C, and I didn’t see anything in there that changed the rules for when labor costs could be included. So, unfortunately I don’t think you’ll be able to include labor costs of insulation when figuring the credit. (FWIW, I find it odd that Congress chose to write the law that way.)

Hello! Are you aware of if the Section 25C credit for insulation is for material AND labor, or just material? Currently the tax credit today is limited to $500 lifetime, and 10% of the cost of material only for insulation. I cannot figure out from reading the law and others’ take on it if it now will include material AND labor. It is clear for “residential energy property” but not for “Qualified energy efficiency improvements”

Thank you! And those are both excellent questions.

The answer to your first question is that I don’t know. At first, I assumed the credit worked as you described. But an interpretation I’ve heard from some smart people (e.g. Jesse Jenkins) is that if you buy a heat pump, your maximum credit is $2,000, and if your heat pump credit goes above $1,200, you can’t get a credit for anything else—and I think that’s also a reasonable interpretation of what Congress wrote. So my plan now is to wait for guidance from the Treasury to definitively answer this question, if only because I’ve seen Treasury regulations that took more liberties with less ambiguity (*cough* GILTI).

12/27 UPDATE: The IRS has weighed in and endorsed the more generous interpretation of the credit. Woohoo!

To your second question: for a heat pump project I think it’s possible that might work. As of Jan 1, 2023, the relevant language (emphasis added) is:

(a) Allowance of credit
In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to 30 percent of the sum of—
(1) the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during such taxable year,
(2) the amount of the residential energy property expenditures paid or incurred by the taxpayer during such taxable year, and
(3) the amount paid or incurred by the taxpayer during the taxable year for home energy audits

So that’s probably another thing to look for in future guidance.

Two 25C questions:

1. Are the $2k heat pump and $1.2k credits cumulative? For example, if a taxpayer incurs at least $6k in qualifying heat pump costs and at least $3.6K in qualifying energy efficiency improvements in the same tax year, then is the credit $3.2k?

2. Could a taxpayer incurring $12k (say, unit + labor) for a qualifying heat pump project pay $3k in Dec. 2023 and $3k in Jan. 2024, and then claim the $2k credit in both tax years?

They made this way too complicated.

You may want to look into the High-efficiency Electric Home Rebate program and the HOMES program. Those programs, new in the Inflation Reduction Act, will be administered by state energy offices. Here’s a list of state energy offices and links to their websites: https://www.energy.gov/eere/femp/state-energy-offices-and-organizations. There’s a limited pot of grant money for the programs, so you’d want to get in line early.

There’s also an existing program, the Weatherization Assistance Program, which may be useful to you: https://www.energy.gov/eere/wap/weatherization-assistance-program

Good luck!

Thank you! And I don’t think the order changed? The solar panel credit does still carry forward.