Why homeowners miss tax credits

Many homeowners assume “tax breaks” means deductions only (like mortgage interest or property tax deductions) and overlook real tax credits that directly reduce the tax you owe. Some credits are new or changed under recent law (for example, the Inflation Reduction Act updates to energy credits), others require specific documentation, and a few are administered at the state or local level rather than federal. Missing one of these credits can mean leaving hundreds or thousands of dollars on the table.

Authoritative sources: see IRS pages for the Residential Clean Energy Credit and the Energy Efficient Home Improvement Credit (Form 5695 instructions) and guidance from the Consumer Financial Protection Bureau on tax topics (IRS: https://www.irs.gov/credits-deductions/individuals; CFPB: https://www.consumerfinance.gov/).

Common homeowner tax credits (and corrections to common confusions)

  • Residential Clean Energy Credit (often called the solar or renewable energy credit). This federal credit covers a percentage of qualified system costs for solar panels, certain solar water heaters, small wind, and geothermal systems. After 2022 changes, the credit is generally 30% for systems placed in service in the post‑2022 period; check the IRS page for current rate years and qualifying equipment. Claim these credits on IRS Form 5695. (IRS: Residential Clean Energy Credit page.)

  • Energy Efficient Home Improvement Credit (updated rules since the Inflation Reduction Act). Reworked recently, this credit covers a range of qualifying improvements (insulation, efficient heat pumps, water heaters, windows in some cases) and may have different annual limits and requirements than older versions of the credit. Use Form 5695 and read the IRS instructions carefully.

  • Electric vehicle (EV) charger / refueling property credit for homeowners. Incentives exist for certain residential EV charging equipment and alternative fuel refueling property; rules and caps can differ whether you’re a homeowner or a business. Confirm eligibility and the correct form on the IRS site.

  • First‑time homebuyer credits and recapture issues. The federal refundable first‑time homebuyer credit that existed during 2008–2010 is largely expired, but some taxpayers still have open filing/repayment obligations (Form 5405) or state/local first‑time buyer credits and grant programs that act like credits. Search the IRS and state revenue website for special programs.

  • State and local credits. Many states and utilities offer credits, rebates, or tax incentives that homeowners miss because they think only federal credits matter. Examples: state solar tax credits, property tax exemptions linked to energy improvements, and local rebate programs.

Note: the commonly cited “mortgage interest” benefit is a deduction, not a credit. A deduction reduces taxable income while a credit reduces the tax due dollar-for-dollar. If you don’t itemize, you may not receive the mortgage interest deduction at all; that’s a separate issue from credits.

Who is eligible?

Eligibility varies by credit:

  • For residential clean energy credits: the homeowner who pays for and places the qualifying property in service usually claims the credit. Leased systems or power purchase agreements follow different rules.
  • For energy-improvement credits: the taxpayer who purchases and pays for the qualifying equipment and who owns the residence during the tax year is typically eligible.
  • For EV charger credits and other niche incentives: eligibility often depends on equipment standards, manufacturer certifications, installation date, and whether the charger is for personal use.

Always confirm with the IRS guidance for each credit and check state tax authority pages for local credits.

How to claim these credits — step-by-step

  1. Identify the credit that fits your project. Use IRS topic pages (Residential Clean Energy Credit; Energy Efficient Home Improvement Credit) and reputable guides to confirm which credit applies.
  2. Confirm qualifying equipment and taxpayer rules. For energy credits you’ll typically need a Manufacturer’s Certification Statement, contractor invoices, and proof of payment.
  3. Keep detailed records. Save receipts, contractor contracts, product model numbers, energy ratings, and canceled checks or credit card statements. For home improvements, retain before/after photos when relevant.
  4. Complete the right tax form. Many residential energy credits are claimed on Form 5695 (Residential Energy Credits); read the form instructions and attach to your Form 1040. Other credits may require separate forms—follow the IRS page for each credit.
  5. Consider timing and carryforward rules. Some credits are nonrefundable and can be carried forward to the next tax year if they exceed your tax liability; others are refundable. The IRS publications for each credit explain these details.
  6. File federal and state returns correctly. If you claim a federal credit that affects your adjusted gross income (AGI) or tax liability, check whether your state requires additional forms or disallows some credits.
  7. Get professional help when needed. If an installation or transaction is complex (e.g., financed equipment, leased solar, or mixed business/personal use), a CPA or tax preparer can help avoid mistakes.

IRS references and forms to start with:

Real-world examples (how these credits look in practice)

Example 1 — Solar array: A homeowner pays cash for a rooftop solar system in 2024. They take the Residential Clean Energy Credit on Form 5695 to claim 30% of the eligible system costs. If the credit is larger than the homeowner’s tax liability for that year, the unused portion may be carried forward per IRS rules (check the current carryforward policy on the IRS page).

Example 2 — Heat pump upgrade: A family replaces an old furnace with a qualifying heat pump that meets federal efficiency standards. The purchase and installation costs may qualify for the Energy Efficient Home Improvement Credit; the taxpayer keeps the contractor invoice and manufacturer certification and claims the credit on Form 5695.

Example 3 — State program + federal credit: A homeowner gets a state rebate for an electric water heater and also claims the federal residential energy credit for the portion of the cost not covered by the rebate. Rules differ by state—some require you to subtract the rebate when calculating the federal credit.

Common mistakes and how to avoid them

  • Treating deductions as credits (and vice versa). Mortgage interest and the SALT property tax cap are deductions, not credits. Deductions lower taxable income; credits cut tax liability directly.
  • Missing the right paperwork. Missing manufacturer statements, model numbers or contractor invoices is the most common reason the IRS will question a residential energy credit.
  • Assuming all upgrades qualify. Only equipment that meets efficiency and technology standards qualifies — check IRS lists and manufacturer documentation.
  • Forgetting state/local incentives. Always search your state energy office and utility for extra incentives that stack with federal credits.

For related reading on how home-related tax breaks interact with mortgages and property taxes, see our FinHelp articles: “Home-Related Tax Breaks: Mortgage Interest, Property Taxes, and Energy Credits” and our step-by-step guide “How to Claim Home Energy Tax Credits: What Receipts to Keep.” Also consult our overview of the “First‑Time Homebuyer Credit” for historical context and recapture rules.

Professional tips

  • When in doubt, document everything. A well-organized folder (digital or physical) with receipts, certifications, and payment proof often saves more than the credit’s value in time and stress if audited.
  • Plan upgrades around tax years only after verifying eligibility and product certification; small changes to equipment specs can disqualify a credit.
  • Work with your installer to obtain the specific manufacturer and installer documentation you’ll need at tax time.
  • Review state and utility programs before you buy — rebates can change the math on whether to buy now or wait for a better incentive.

FAQs

Q: Which IRS form do I use to claim residential energy credits?
A: Many residential energy credits use Form 5695; always check the IRS instructions for the credit you’re claiming.

Q: Are these credits refundable?
A: It depends. Some credits are nonrefundable but can be carried forward; others have refundable elements. Confirm on the IRS credit page.

Q: Can I claim a credit if I financed the equipment?
A: Yes—if you are the taxpayer who paid the costs and the property is placed in service, you can generally claim it even if financed. Keep loan documents and payment records.

Final note and disclaimer

This article explains common homeowner tax credits and practical steps to claim them as of 2025, drawing on IRS guidance and consumer finance resources. It is educational only and not a substitute for personalized tax advice. For decisions that affect your tax return, consult a certified tax professional or CPA and review the current IRS publications cited above.