improve the energy efficiency of your home not only helps decrease your utility expenses but can also qualify you for municipal tax credits. As you consider new insulation, or perhaps you have already installed new insulation, you may be asking yourself: How do I claim insulation tax credit and get the most you possibly can out of the incentive?
This extensive overview explains how to claim insulation tax credits, what qualifies for insulation tax credits, what you can get, and what to do to maximize your energy-saving opportunity.

What Is Insulation Tax Credit?

Insulation tax credit is part of a larger federal program for tax incentives under the Energy Efficient Home Improvement Credit (section 25C) for homeowners looking to improve energy efficiency in their homes, providing energy-saving upgrades such as:
• Attic insulation
• Wall and floor insulation
• Spray foam, fiberglass batts, and rigid foam board
Because this is a tax credit, it is dollar-for-dollar reduction against your income tax. For example, if you qualify for a insulation tax credit of $1,200, your income tax is reduced by $1,200.

Why Insulation Tax Credit is Important

Before we get into the particulars of how to make the insulation tax credit claim, let’s assess the purpose of this incentive:
• Encouraging energy efficiency – decreasing consumption is good for the planet and our national grid, but it also indirectly reduces the overall utility bills coast-to-coast.

Who is able to claim the insulation tax credit?

Almost anyone who owns a primary residence in the US, and makes qualifying insulation improvements would be able to claim the tax credit. Here’s a quick summary:

• Homeowners (not renters)
• Only for the primary residence (not vacation rentals/homes)
• Insulation must be in accordance with the Energy Star requirements for 2023–2032.
• Needs to use certified materials, in existing homes (new builds don’t qualify).

Understanding your eligibility is essential when asking how to claim insulation tax credit because, as you can see, the IRS is strict on what qualifies.

What insulation is eligible?

Not all insulation is treated equally. For insulation to be eligible for the insulation tax credit, the materials need to meet Energy Star standards for your climate zone.

Eligible insulation materials:

• Batt or roll insulation (mineral wool or glass fiber)
• Blown-in insulation (cellulose, fiberglass, mineral wool)
• Spray foam insulation
• Rigid foam board insulation
• Reflective insulation or radiant barrier insulation

Note: Labor costs to install insulation do not qualify for the credit – only material costs qualify.

How Much Is the Tax Credit for Insulation?

In December of 2022, the Inflation Reduction Act expanded energy-efficiency tax credits. For insulation, these are:

• 30% of materials cost
• Plus up to a $1,200 annual limit per taxpayer
• The $1,200 limit applies to all energy-efficient improvements combined (including windows, doors, insulation, etc.)

So, if you spend $2,000 on qualifying insulation materials, you can claim $600 (30%) on your taxes for insulation – as long as that amount did not exceed the $1,200 cap.

How to Claim Insulation Tax Credit: A Step-By-Step Approach

Now that you understand the credit, let’s discuss an effective step-by-step process for claiming the insulation tax credit.

Step 1: Buy Qualifying Insulation Products
You must buy Energy Star certified insulation. Ask the retailer or manufacturer for a Manufacturer’s Certification Statement, which states that the product meets federal standards.

Step 2: Keep All Your Receipts and Documentation
Also, keep records showing:

• The date of purchase
• Name and type of product
• Your cost for the materials in this category (not including labor)

Documentation is important, even if you think you’ll never be asked. If you are ever audited or sought to prove what you claimed, you’ll need your documentation to justify taxable credit.

Step 3: Fill Out IRS Form 5695
When tax season rolls around, you will fill out Form 5695 – Residential Energy Credits. For the insulation tax credit, you will fill out Part II of the form, in which you’ll enter the cost.

Common Mistakes to Avoid When Claiming the Insulation Tax Credit

While is is important to know how to claim an insulation tax credit, it is also important to know about mistakes that can cost you money or delay your refund.

Mistake 1: Claiming Labor Costs
The costs of installation labor is not eligible for the insulation credit — only the cost of the insulation materials qualifies.

Mistake 2: Purchasing Non Qualified Products
You will not qualify if your insulation does not meet Energy Star or IRS guidelines. Always verify the certifications before the purchase.

Mistake 3: Applying for New Construction or Addition
The tax credits only apply to existing homes. New construction, or additions to existing homes, do not qualify for tax credits.

Mistake 4: Going over the yearly cap
If you spend $5,000 on insulation, it doesn’t matter – you are capped on the total credit you can claim at $1,200 per year.

Frequently Asked Questions (FAQ)

1. Am I able to claim insulation tax credit more than once?
Yes, you absolutely can! Since the $1,200 cap is each year, you can make improvements over several years and claim the tax deduction in each year as long as you do not go over the cap.

2. What if I installed insulation in a rental property?
Unfortunately, you can’t apply for the tax credit for rental properties. The tax deduction is only applicable for your primary residence.

3. Do I need to hire a contractor?
No! You can install it youself, however, the product must qualify, and you need to retain receipts for the materials.

When You’ll Want to Take Action

While the energy-efficient tax credits are generally expected to be available until 2032, you’ll want to act sooner than later to get immediate savings on both your taxes and utility bills. And with the price of building materials on the rise, make your purchase sooner, rather than later, and it could save you even more in the long run.

Conclusion: Be Smart When Claiming the Insulation Tax Credit

Knowing how to claim insulation tax credit can be an enormous savings opportunity, but it could also mean more energy efficiency for your home. Whether it is your attic, crawl space, or the entirety of your home, taking the time to do your research, track, and filing properly will ensure that you get every penny you are entitled to.

Here is a quick reminder about claiming insulation tax credit.

1 .Select insulation that is Energy Star certified

2 .Maintain all documentation, receipts and records

3 .Correctly fill out IRS Form 5695

4. File your tax return and include in your 1040

5 .Keep copies for your records

With the right steps to claim the insulation tax credit, you can keep your house warmer, lower your bills, and have lower taxes.