Homeowners Slash Bills as Tax Breaks Face Uncertainty

Megan Moritz realized her dream of home ownership in 2019 with the purchase of a 1,400-square-foot house in Arlington Heights, a suburb situated northwest of Chicago. Built in the 1930s, the home presented significant drawbacks, as it lacked insulation, resulting in exorbitant heating costs, which Moritz described as “very high.”

To enhance her home’s energy efficiency, Moritz decided to invest approximately $5,700 in various projects last year. These included adding insulation to exterior walls and sealing gaps in the ductwork connected to her furnace to curb air leaks.

As a result of these improvements, she managed to cut her gas heating bills by over 50% during the winter months, stating her home is now “delightfully toasty.” In December 2024, records indicate her heating bill decreased to $102, down from $311 two years earlier, while her January 2025 bill dropped to $116 from $288 in January 2023.

Furthermore, Moritz benefited from a $1,200 federal tax credit when she filed her taxes this year. She joins millions of homeowners who take advantage of tax credits for energy efficiency upgrades annually.

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“The most significant benefit for me was definitely not freezing,” Moritz, 48, explained, adding that the reduction in her monthly bill was an unexpected perk. “The tax credit was just the cherry on top,” she remarked.

However, the future availability of this tax credit is uncertain.

Republican lawmakers have indicated they may target this tax credit, along with other consumer financial incentives drafted under the Inflation Reduction Act, in an effort to fund a proposed multi-trillion-dollar tax cut plan being discussed in Congress.

The energy-efficient home improvement credit, also known as the 25C credit, provides homeowners with a tax benefit of up to 30% for qualifying projects.

Taxpayers can claim a maximum of $3,200 each year on their tax returns, contingent upon the nature of the projects completed. For instance, homeowners are eligible for up to $2,000 when installing a heat pump, heat pump water heater, or a boiler/stove fueled by biomass, in addition to $1,200 for enhancements such as efficient air conditioners, windows, doors, insulation, and air sealing.

Approximately 2.3 million taxpayers utilized this credit in their 2023 tax returns, as per data from the Internal Revenue Service. The average family claimed around $880, according to figures from the Treasury Department.

Blair Kennedy, a Maryland resident in Severna Park, plans to apply for this tax credit when he files his taxes next year.

At 38, Kennedy invested over $6,000 in March to have fiberglass insulation added to his attic and to air-seal his 3,700-square-foot home, with state and local rebates factored in.

He anticipates a federal tax credit will help lower his effective cost to about $5,000. “Without the tax credits, I think it would have been a significantly tougher decision to pursue this upgrade,” said Kennedy, a real estate agent.

This tax credit has a longstanding history, dating back to the Federal Energy Tax Act of 1978, as indicated in a study by economists from the Haas Energy Institute at the University of California, Berkeley.

Initially designed to boost energy security in the U.S. following the energy crises of the 1970s, the primary aim of the credit today has shifted towards combating climate change. According to researchers from the School for Environment and Sustainability at the University of Michigan, residential energy consumption accounts for roughly 20% of the nation’s greenhouse gas emissions.

The Inflation Reduction Act, enacted in 2022 under former President Biden to address climate change, not only extended the tax credit through 2032 but also expanded its provisions. Biden-era officials asserted that the popularity of the tax break exceeded expectations.

“Many clean-energy technologies provide significant advantages, although they often come with a higher price tag compared to conventional options,” noted economist Lucas Davis. “This tax credit incentivizes consumers to invest in capital that will yield environmental benefits.”

Households can only utilize this tax credit if they carry an annual tax burden, as it is nonrefundable. Higher-income households typically benefit more due to their likelihood of having a tax liability, Davis pointed out.

The Inflation Reduction Act also encompasses various consumer tax credits and financial incentives targeted at electric vehicles, solar panels, and energy efficiency efforts.

Experts suggest that Republican lawmakers could potentially strip these incentives as part of a new tax-cut package that could exceed $4 trillion. Former President Trump has expressed intentions to eliminate IRA funding during his campaign, and Republicans have attempted to repeal elements of this law over 50 times in the House.

“There is a genuine risk that these credits may be altered or entirely removed in the current budget discussions,” said economist Davis.

Nonetheless, some Republicans in both the House and Senate are advocating for the continuation of these tax benefits, which may be crucial in maintaining these incentives due to narrow margins in Congress.

A recent study found that around 85% of clean-energy investments and 68% of jobs related to Inflation Reduction Act funding are located in districts represented by Republicans.

Experts predict that many households will proceed with energy-efficiency projects regardless of whether the tax breaks remain in effect. Cost savings on utility bills often serve as a primary incentive for these improvements.

A return on investment typically emerges within five to ten years due to reduced monthly energy costs, explained Ryan Warkentien, head of ARC Insulation, the company that retrofitted Moritz’s home. For those benefiting from the tax credit, this period can decrease to three to five years.

A steep energy bill of approximately $1,000 in January spurred Kennedy to conduct an energy audit to pinpoint areas needing improvement in his Maryland home. (Taxpayers can claim a $150 tax credit for auditing expenses.)

Kennedy is aiming for a minimum 15% reduction in his monthly energy costs and anticipates the energy efficiency upgrades will ease the burden on his heating, ventilation, and air conditioning systems. This will not only allow his home to maintain a comfortable temperature but will also extend the lifespan of the HVAC components, deferring maintenance costs.

“The tax credit was a delightful bonus,” he remarked.

And similarly, Moritz also expressed her satisfaction with the improvements. “I’m genuinely enamored with my house,” she said. “The investments I make here are for my own benefit, as I plan to spend my life in this home.”