Upgrading your home’s insulation makes your living space more comfortable. It can also put real money back in your pocket through federal tax savings. Does your New Mexico home qualify for insulation tax credits? You may be surprised.
What is a Tax Credit?
A tax credit directly reduces the amount of federal income taxes you owe, which is very different from a tax rebate or discount. A tax rebate is either an upfront price reduction or money returned after a purchase. A tax credit, on the other hand, is applied when you file your annual tax return.
The insulation tax credit is part of the Energy Efficient Home Improvement Credit, a federal program intended to encourage homeowners to make energy-saving upgrades. Instead of waiting for years to see payback solely from lower utility bills, the Energy Efficient Home Improvements program rewards you more immediately by lowering your tax burden for the year your improvements were installed.
How the Federal Energy Efficient Home Improvement Credit Works
When you improve your insulation or add air sealing to your home, you may qualify for a federal tax credit of up to $1,200. Here’s how it breaks down:
- The credit reduces your federal tax bill dollar-for-dollar.
- It can only be used if you have a federal tax liability (that is, if you owe taxes).
- The credit equals 30% of qualifying insulation and air sealing material costs.
It’s important to note that labor for installation is not included — only the cost of the qualifying products themselves.
You’ll need an itemized invoice that lists eligible materials to claim the credit. When it’s time to file, provide this documentation to your tax professional or complete IRS Form 5695 if you handle your taxes on your own.
Step-by-Step: Claiming the Insulation Tax Credit
Here’s the simplest way to make sure you qualify and don’t miss out:
- Work with an experienced insulation contractor – Choose an insulation company that understands the federal program requirements so that all qualifying materials are properly documented.
- Request an itemized invoice – Your invoice should separate labor costs from qualifying insulation and air sealing products, so you know exactly what portion can be claimed.
- File during tax season – Give the invoice to your tax preparer, or if filing yourself, use IRS Form 5695 to claim the credit for the year your project was completed.
Following these steps ensures you receive the maximum benefit available to you.
What the Insulation Tax Credit Does Not Cover
Like any federal program, there are restrictions. The insulation tax credit does not:
- Provide a refund. If your credit amount is greater than the taxes you owe, you will not receive the difference back.
- Carry over into future years. Any unused portion of the credit cannot be saved or rolled forward.
- Cover labor costs. Only the expense of qualifying insulation and air sealing materials is eligible.
Even with these limits, the savings are meaningful. Combined with the long-term benefit of lower heating and cooling bills, upgrading your insulation remains one of the smartest investments you can make in your home.
Urgent Update: The Insulation Tax Credit Expires at the End of 2025
When first introduced, the Energy Efficient Home Improvement Credit was expected to run through 2032. However, a new law has shortened its availability. The program now ends December 31, 2025.
This change means homeowners have only a short window to take advantage of the credit. Your insulation and air sealing improvements must be fully installed before the deadline to qualify.
Find Out How Much You Can Save with Millers
We know that every dollar counts when it comes to making home improvement investments, which is why the team at Millers is trained and familiar with many home improvement incentives like the Energy Efficient Home Improvement tax credit.
We make saving money easy with insulation incentives and tax credit options!
Call 505-544-5083 or contact us online today to get started.
