Upgrading your windows does more than improve the look and comfort of your home, it can also put money back in your pocket at tax time.
Thanks to the Inflation Reduction Act, homeowners now have access to expanded tax credits that reward energy-efficient home improvements. One of the most homeowner-friendly parts of this legislation is the Energy Efficient Home Improvement Credit (25C), which offers a direct tax credit for qualifying upgrades — including energy-efficient windows.
That means when you replace your old windows with models that meet strict energy performance standards, you’re not only lowering your monthly utility bills — you’re also lowering your tax bill.
In this guide, we’ll break down how the credit works, what qualifies, and how you can take advantage of it to maximize your savings.
What Is the Energy Efficient Home Improvement Credit (25C)?
The Energy Efficient Home Improvement Credit, also known as Section 25C, is part of the sweeping changes introduced by the Inflation Reduction Act of 2022.
Unlike a deduction, which lowers your taxable income, this is a direct tax credit. That means it reduces the actual amount you owe the IRS, dollar for dollar.
Here’s how it works:
- Homeowners can claim 30% of the cost of qualifying improvements, including new windows.
- However, there is a limit. For window replacements, the credit is capped at $600 per year.
- If your project exceeds the cap, you can’t carry forward unused amounts — but you can spread out improvements over several years to maximize the available credit each year.
The best part? The credit is available annually through 2032, so if you want to phase your window replacements or tackle other energy-efficient upgrades over time, you can claim credits year after year.
In short, 25C makes improving your home’s efficiency more affordable — now and in the long run.
How Does the Tax Credit Work?
Before we dive into the numbers, let’s make an important distinction. Many homeowners confuse tax deductions with tax credits, but they work very differently:
- A tax deduction lowers your taxable income, which may reduce how much you owe depending on your tax bracket.
- A tax credit, on the other hand, directly reduces your tax bill — dollar for dollar.
For example, if you owe $2,000 in taxes and receive a $600 credit, your new tax bill is just $1,400. It’s straightforward savings.
What Counts (and What Doesn’t)
When it comes to the Energy Efficient Home Improvement Credit (25C) for windows, here’s what matters:
- Only the cost of the windows themselves qualifies.
- Labor and installation costs do not count toward the credit.
That means when you calculate your eligible expenses, you’ll need to separate product costs from installation or other service fees.
Example Scenario
Let’s say your new energy-efficient windows cost $3,000 (product only).
- At 30% credit, that equals $900 in potential tax savings.
- However, since the credit for windows is capped at $600 per year, that’s the maximum amount you can claim for this project.
Still, $600 directly off your tax bill is a huge perk — and if you space out additional window projects over multiple years, you can continue to claim credits year after year.
Filing for the Credit
When tax season comes around, claiming your credit is simple. You’ll use IRS Form 5695 (Residential Energy Credits) to report your qualifying expenses.
Most tax software or preparers can walk you through the form, but you’ll want to have:
- Product receipts showing costs
- Manufacturer certification statements proving Energy Star® qualification
This ensures you can back up your claim if the IRS requests documentation.
What Types of Windows Qualify for the Energy Efficient Home Improvement Credit (25C)?
Not just any new window will earn you a tax credit. To be eligible for the Energy Efficient Home Improvement Credit (25C), your windows must meet specific performance standards set by the federal government. Here's what to look for:
Energy Star® Certification is Required
To qualify for the credit, windows must be Energy Star® certified. This means they meet or exceed strict energy efficiency guidelines established by the U.S. Environmental Protection Agency (EPA). These guidelines are designed to ensure that windows help reduce energy use based on your regional climate zone.
- In warmer climates like Texas, Energy Star windows are designed to block more solar heat, helping reduce cooling costs.
- In colder climates, they focus on better insulation to keep heat inside during winter months.
No Energy Star certification = no eligibility for the tax credit, so this is the first box to check.
Performance Ratings: U-Factor and SHGC
Energy Star certification is based on two key window performance measures:
- U-Factor: Measures how well the window prevents heat from escaping. Lower is better. For south and much of central Texas and similar regions, a U-Factor of 0.32 or lower is typically required.
- SHGC (Solar Heat Gain Coefficient): Measures how well the window blocks heat from the sun. Lower is better. In hot, sunny climates, a low SHGC helps keep your home cooler and reduces energy costs. For south and central Texas, an SHGC of 0.23 or lower is required.
These numbers are critical—not only do they ensure comfort and efficiency, but they also determine tax credit eligibility.
Additionally, the windows must be installed in an existing home that is your primary residence (new construction and rental properties do not qualify).
In short, choosing windows that qualify for tax credits means paying close attention to certifications and ratings — and working with a knowledgeable contractor who can help you select the right products.
What About Other Incentives?
While the Energy Efficient Home Improvement Credit (25C) offers a great way to save at tax time, it’s just one piece of the puzzle. You can often take advantage of additional local and utility rebates, which can be stacked with the federal credit for even more savings.
Stacking Savings: How It Works
In many areas, utility companies offer rebates to encourage homeowners to upgrade to energy-efficient windows. These rebates typically come in the form of:
- Per-window cash rebates (e.g., $25–$100 per window)
- Flat-rate discounts on qualifying products
- Energy audit rebates for completing qualifying upgrades
These rebates can usually be combined with your federal tax credit, meaning you can enjoy:
- Immediate savings through rebates
- Direct tax savings at the end of the year
- Ongoing savings on your monthly energy bills
That’s a triple win that makes upgrading even more affordable.
Finding Local Rebates
Because rebate programs vary by city, state, and utility provider, it’s important to do a little research. Here are two great ways to get started:
- DSIRE Database (Database of State Incentives for Renewables & Efficiency - https://www.dsireusa.org). This free resource allows you to search by zip code for rebates, tax credits, and other incentive programs available in your area.
- Contact Your Local Utility Provider. Many utility companies offer seasonal or ongoing rebates for Energy Star® certified windows. Give them a call or visit their website to see what’s available.
The Power of Combined Incentives
By layering these programs together, your total savings could be substantial. Here’s what it might look like:
- $600 federal tax credit
- $250 utility rebate
- $300–$500/year in energy savings
Over time, your investment in energy-efficient windows could pay back faster than you think—especially when every incentive works together to reduce costs.
Why Act Now?
While the Energy Efficient Home Improvement Credit (25C) is available through 2032, waiting to take advantage of it could mean missing out on valuable savings.
Yes, the program is scheduled to run for several years—but the sooner you upgrade your windows, the sooner you’ll start enjoying the benefits:
- Lower monthly energy bills starting immediately after installation.
- Federal tax credits you can claim as early as your next tax return.
- Local rebates that may have limited-time availability or change year to year.
In addition, window prices—and energy costs—are unlikely to stay the same.
As material costs, manufacturing expenses, and energy prices continue to rise, today’s prices and incentives are likely the best they’ll be for years to come. Acting now locks in:
- Lower product and installation costs
- Maximum available tax credits and rebates
- Immediate energy savings that start adding up right away
And while the credit is set to last until 2032, government programs can change. By upgrading sooner rather than later, you reduce the risk of missing out if future legislation tightens requirements or reduces benefits.
In short: the longer you wait, the more you leave on the table.
Make Your Window Upgrade Work Harder for You
To recap: with the Energy Efficient Home Improvement Credit (25C), eligible window replacements can:
- Put up to $600 per year back in your pocket at tax time
- Qualify for additional local utility rebates
- Lower your energy bills for years to come
- Boost your home’s value and comfort
At Southwest Exteriors, we make the process easy. From selecting qualifying windows to providing the documentation you need for tax filing, we’re here to help you maximize your return and enjoy a more efficient, beautiful home.
Schedule a free consultation today to learn more about your options and find out exactly how much you could save.