Save Money with Green Tax Credits

You may be preparing to file your current tax return, but it’s not too early to start thinking about opportunities to save money on next year’s tax bill. With green tax credits, you can save on taxes while also cutting back on energy costs and making a difference for the environment. As of January 2025, homeowners can take advantage of several federal tax credits to offset the cost of energy efficient home upgrades.

If you make certain energy improvements to your home, the IRS allows you to take tax credits for the tax year in which you made the improvements. Unlike tax deductions, which reduce the amount of your taxable income, tax credits are applied to the actual amount of tax you owe. For example, if you owe $10,000 in taxes for next year but you qualify for a $2,000 green tax credit, your owed amount will be $8,000.

Keep reading to learn about some of the home energy upgrades that can help you save money on taxes and reduce your energy consumption.

Heat pumps are energy-efficient alternatives to furnaces and air conditioners because they transfer heat rather than generate heat. The cost to install a heat pump in your home can range from $2,500 to $10,000, according to the American Society of Home Inspectors.

After installation, the U.S. Department of Energy estimates that homeowners can save up to $500 per year on utility bills. And when you install a heat pump in your home, you can deduct 30% of the cost up to $2,000 from your owed taxes.

In 2024, the U.S. Department of Energy (DOE) issued new standards for residential water heaters that requires newly manufactured water heaters to use clean energy and increase efficiency. Most new water heaters will use heat pump technology to achieve efficiency, and over 30 years, the DOE estimates that American families will save $124 billion on energy bills as a result. Many households can expect to save more than $170 each year.

If you install an eligible electric water heater and take advantage of the current tax credit, you can deduct 30% of the cost, up to $2,000, from your taxable income.

If you install a natural gas water heater that is ENERGY STAR certified, you can claim 30% of the project cost, up to $600, as a tax credit.

If your home insulation is outdated, you may be losing heat in the winter and cool air in the summer, leading to increased energy usage and higher energy bills.

When you install new insulation or sealants such as weather stripping or caulk, you can qualify for a tax credit for 30% of the cost, up to $1,200.

When windows and doors are not sealed tight and energy efficient, they can allow cold air into your home and warm air to escape.

Update your home’s doors to ENERGY STAR-certified options and you can claim a tax credit for 30% of the cost, up to $500 ($250 per door).

If you update windows to those that meet ENERGY STAR criteria, you can claim a tax credit for 30% of the cost, up to $600.

As you consider home upgrades to achieve more sustainability and energy efficiency, take time to review your employer’s benefits package to see if you have access to more perks. Many employers now offer benefits to promote environmentally friendly practices; for example, Forbright Bank offers employees bonus incentives for purchasing residential solar panels, electric vehicles, or biking to work, as well as paid subscriptions to compost programs.

Disclaimer: This article is for general information and education only. It should not be considered
financial or tax advice given by the bank.