Energy Efficient Tax Credit Changes
Tax law has been in the news lately with the impending changes; however, one change is already taking effect, and that is the end of energy-efficient tax credits. These credits have been selling points for many contractors, especially electricians who perform solar installations or HVAC work for high-efficiency units.
If you are unfamiliar with these energy tax credits, they were designed to help customers purchase items that made their homes more energy efficient, thereby subsidizing some of the cost of the units.
Before we dive into the changes that are upcoming, let’s talk about what tax credits actually are. When you are filing income tax, you have two different options for reducing your taxable income: tax credits and tax deductions.
Tax credits directly lower the tax you owe. If you have a tax credit for $500, that $500 will reduce your tax liability or tax bill by $500. If you have a tax deduction, this will lower your total taxable income. This makes these changes an even bigger deal because they directly reduced homeowners’ tax liabilities, not just their overall taxable income.
Energy Efficient Home Improvement Credits
Over the past few years, these credits have been utilized in various capacities, depending on the administration. Many contractors have seen benefits at some point throughout the credits.
Electricians can benefit from solar panels or battery cell backups. HVAC had credits for geothermal systems or high-efficiency units. Plumbing has high-efficiency boilers and water heaters. General construction was even able to get credits by using highly insulated windows, doors, and roofs that helped energy efficiency.
These credits will begin to fade out in August of 2025, but most will expire in December 31 2025 with the new “One, Big, Beautiful Bill”. (https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions) By the end of December 2025, most credits for solar energy, energy audits, and insulation will expire.
Obviously, there are always some gray areas in tax law, and when these credits expire. Solar is currently one of those gray areas that require further definition. Does the solar just need to be installed, or does it need to be functioning?
(As of the time this was written, there was no clarification on this.) Insulation must be completed to receive any credits in 2025. HVAC, the final invoices, and installation must be completed in 2025 to qualify for the tax credits.
Discussing solar energy is likely to be a challenging conversation because there are numerous factors beyond installation. Installation could be completed, but do you have to wait for the utility companies to sign off? That will be a major change that we will update if anything changes.
Regarding investment and production of generation and energy storage, according to the Solar Energy Industries Association, the rules for solar projects stipulate that construction must begin on or before July 4, 2026, or the unit must be placed in service on or before December 31, 2027. This means that full solar panel units will be phased out, rather than abruptly ended, like most of the energy credits in December 2025. https://seia.org/research-resources/clean-energy-provisions-big-beautiful-bill/
Battery packs will also pose an issue for electricians due to the high credit rate of 30%. This loss of sales incentive could significantly impact the pricing and sales associated with the battery packets. Overall, solar is poised for a significant shift due to the lack of credits, which will boost sales by reimbursing the initial costs.
For industries outside of electricians, such as plumbing, HVAC, and general construction, the loss of these credits will not have such severe consequences. Obviously, if you were reliant on these credits because your company decided to focus on energy-efficient units as its bread and butter, you would see the effects of these changes.
Mostly, if you have ever sold anything using the energy efficient credits as a selling point, you should be aware that, as of right now and the foreseeable future, those credits aren’t going to exist beyond 2025. If you have any sales paperwork that explicitly lists these credits, you will want to update all of them by the end of November to ensure you do not encounter any issues.
Even for current job estimates, we recommend adding a disclaimer stating that the deadline for these credits is the end of this year. Additionally, ensure that you have a timeline for your estimates, as there may be an increase, not necessarily due to material costs, but rather because of credits.
We may be seeing a market shift where, without these credits, customers are opting for less expensive, lower-end brand models. This is something to keep in mind for your sales team: ensure that you have alternative options to replace the credit. Being adaptable to this new market change will be the key to success.
If you believe your business may need to explore new strategies or review its current financials to assess its performance, please don’t hesitate to contact us at info@waterfordbusiness.com. We have a YouTube channel with numerous topics that parallel our blog posts. Our YouTube videos are released on Mondays, and our blogs are released the following day to make sure everyone has access to the knowledge they may need to run their home service business.