Home energy upgrades may be funded through tax credits. These credits are for upgrades including electrification, energy efficiency, and solar. In some cases, tax credits have been provided by the federal government. Many states also offer tax credits for these upgrades.

Consumers generally pay the cost of a home improvement upfront and then submit for reimbursement when they file their taxes. While less common, tax credits are sometimes included at the point of sale.

Many states that do not provide a traditional tax credit for energy upgrades do provide other tax incentives. For example, many states exempt the products used in energy upgrades or onsite energy generation from sales taxes. Some states and local governments also exempt the value added by such upgrades from property taxes, to prevent unintended disincentives.

Quick tip: It is critical to know the “fine print,” so to speak, to confirm households are eligible. In most cases, tax credits are nonrefundable, meaning the credit can only reduce the amount of tax owed. If it exceeds the tax liability, no refund is given for the difference.