Noon: Individual Tax Tips & Refund Strategies, The Residential Clean Energy Credit and Energy-Efficient Home Upgrades: The Refund Moves New Haven Homeowners Should Make Before December 31

New Haven, Connecticut | Jose’s Tax Service | October 9, 2026

Important timing update: Federal tax law changed after many homeowners began planning energy projects. The Residential Clean Energy Credit and Energy Efficient Home Improvement Credit generally do not apply to new qualifying costs incurred after December 31, 2025. That means a project completed in 2026 is not eligible for these federal credits, even if it is finished before December 31, 2026.

There may still be a tax benefit to document: a qualifying 2025 Residential Clean Energy Credit that exceeded your 2025 tax liability may carry forward to your 2026 return. Use the steps below to check your records, understand the distinction, and avoid relying on an expired credit for a new project.

First, Know Which Credit Applies!

Two federal credits have covered different types of residential improvements. Both are claimed using Form 5695, Residential Energy Credits, but the eligibility rules and timing differ.

• Residential Clean Energy Credit (Internal Revenue Code Section 25D): Covered qualifying residential solar electric property, battery storage, geothermal heat pumps, and certain other clean-energy equipment. Under the 2025 rules, the credit generally equaled 30% of eligible costs.
• Energy Efficient Home Improvement Credit (Section 25C): Covered qualifying items such as heat pumps, insulation, exterior windows and doors, and home energy audits. The credit had annual limits and specific requirements for eligible products and costs.

Under Public Law 119-21, enacted July 4, 2025, both credits were ended for new qualifying activity after December 31, 2025. For Section 25D, paying a deposit or invoice in 2025 was not enough if installation was completed after the deadline. Section 25C generally required qualifying property to be placed in service by the deadline.

Practical result: If your solar panels, battery, heat pump, insulation, windows, doors, or audit were completed in 2026, do not claim these credits for those costs on your 2026 federal return. If an eligible project was completed in 2025, review the 2025 rules and your records.

What Can Still Affect a 2026 Return?

The main remaining opportunity is a carryforward from a previously established Section 25D credit.

The Residential Clean Energy Credit is nonrefundable. It can reduce your federal income tax, but it cannot, by itself, reduce that tax below zero or create a refund beyond the tax otherwise paid. If your allowable 2025 credit exceeded the amount you could use against your 2025 tax, the unused Section 25D portion may generally be carried forward to reduce tax in a future year.

A carryforward is not a new credit for a 2026 installation. It is the remaining amount from a properly claimed earlier-year credit. The IRS’s draft 2026 Form 5695 and instructions describe how to report a Section 25D carryforward from 2025. Check the final form and instructions when available; draft materials can change.

A credit can still affect the refund calculation. For example, a credit that reduces your tax liability may increase the refund of tax already withheld from your pay. But a nonrefundable credit does not function like a payment from the IRS.

Take These Steps to Protect Any Eligible Credit!

1. Identify the tax year of the completed work. Find the installation completion date for solar, batteries, or geothermal equipment. For Section 25C items, confirm when the qualifying property was placed in service. Do not rely only on the date you signed a contract or paid a deposit.

2. Separate the two types of credit. Match each qualifying 2025 expense to the appropriate part of Form 5695. Part I covers the Residential Clean Energy Credit; Part II covers the Energy Efficient Home Improvement Credit. Do not combine costs or apply one credit’s rules to another.

3. Collect complete records. Keep itemized invoices, proof of payment, contracts, permits, equipment specifications, and a record showing when installation was completed. For Section 25C property, retain the manufacturer’s certification statement and any product identification information required by the form instructions. Keep your energy audit report and the auditor’s qualifications if you claimed the audit credit.

4. Review your 2025 Form 5695. If you claimed a Section 25D credit, locate the amount reported as available for carryforward. Compare it with the amount shown on your 2026 return preparation records. Do not create or estimate a carryforward from a 2026 project.

5. Keep the paperwork together. Save copies of filed returns and the supporting records for as long as they may be relevant to your tax return. An incomplete installation date or missing certification can make it harder to substantiate an amount if the IRS asks questions.

The IRS generally does not require you to attach every invoice or certification to your return. You must, however, retain records that support the claim and provide them if requested. Missing or inconsistent documentation can delay processing or lead to a disallowed credit.

Document the Project, Not Just the Payment!

Invoices should describe the equipment and work clearly. Ask contractors for itemized descriptions rather than a single unexplained project total. For solar, battery storage, and geothermal work, retain records that identify the qualifying equipment and related installation costs. For heat pumps, windows, doors, insulation, and audits, keep the product specifications and certifications needed to establish that the property met the rules for the year claimed.

Dates matter. Section 25D generally treated an expenditure as made when installation was completed, not simply when a homeowner paid. Section 25C used a placed-in-service deadline. If your records show payment in 2025 but completion or service in 2026, do not assume the 2025 credit is available. Review the IRS timing rules and discuss unusual or delayed projects with a tax professional.

Standard Deduction or Itemizing: Does It Change the Credit?

Generally, the choice between the standard deduction and itemizing on Schedule A does not determine whether you can claim an otherwise eligible energy credit. A credit is calculated separately from an itemized deduction. You do not have to itemize simply to claim an eligible credit.

That distinction does not make personal home-upgrade costs automatically deductible. For homeowners, these expenses are generally not Schedule A deductions just because they improve energy efficiency. If part of the home is used for a business, different rules may apply to that portion. Keep personal and business records separate, and do not use the same cost twice for different tax benefits.

Self-employed homeowners should pay particular attention to how the property is used. A home office or business use can affect the tax treatment of expenses. Ask a tax professional to review the facts before allocating costs or claiming any business-related deduction.

Your December 31, 2026 Checklist!

The end-of-year date remains useful for organizing your finances, but it is not a new federal credit deadline for these programs. A home energy project completed by December 31, 2026 does not qualify for the ended Section 25C or Section 25D credit based solely on its completion date.

Before year-end:

• Find your 2025 Form 5695 and confirm whether you reported a Section 25D carryforward.
• Match the carryforward to the supporting 2025 return and project records.
• Keep invoices, installation documents, manufacturer statements, and audit records together.
• Do not claim a new federal credit for a 2026 upgrade under Sections 25C or 25D.
• Check final IRS forms and instructions before filing. Rules for a different tax year or a separate state incentive may differ.

For official guidance, review the IRS pages for Residential Clean Energy Credit timing, Energy Efficient Home Improvement Credit, and Public Law 119-21 credit changes. See also the 2025 Instructions for Form 5695 and the IRS’s 2026 draft Form 5695 and draft instructions. Because the 2026 materials are drafts, verify the final versions before filing.

Jose’s Tax Service provides individual tax preparation in New Haven and can help review energy-credit records and carryforward documentation. Keep your prior-year forms and project records accessible; do not assume a 2026 upgrade qualifies for a credit that has ended.

Category: Tax Planning | Tags: tax refund, personal finance, IRS tips, New Haven taxes