With rising energy costs, the U.S. federal government’s skylight tax credit offers valuable financial relief for business owners and homeowners alike. With it, eligible taxpayers can claim significant income tax credits on products like skylights, exterior windows, and doors that meet Energy Star‘s strict efficiency standards.
Here’s how business owners can make use of this and other credits.
The skylight tax credit is a federal incentive outlined under the Inflation Reduction Act that encourages property owners to make energy-efficient improvements to their homes and businesses. The maximum credit amount eligible individuals can claim is up to $600 annually for windows and skylights combined, and up to $500 annually for exterior doors in total (or $250 per door).
These credits are nonrefundable, placing certain limitations on their usability.
Nonrefundable credits reduce federal tax liability but won’t generate a refund if the credit exceeds what is owed. For instance, if tax liability is $300 and someone is eligible for a $600 credit, the person can only claim $300.
Furthermore, unlike some other credits, unused portions of the skylight and door credits do not roll forward to future tax years. Once the credit exceeds your liability for the year, the remaining amount is essentially forfeited.
Here are steps business owners can take to make the most out of this credit.
To qualify for federal tax credits, it’s essential that skylights, windows, and doors meet specific standards. Energy Star Most Efficient-certified products are central to this eligibility. These products undergo strict evaluations and ensure remarkable energy efficiency.
The best practice is to ask for this certification from the manufacturer at the time of purchase. It confirms the product meets energy-efficient criteria as outlined by the IRS.
Not all properties qualify equally for these credits.
- Principal residences: The tax credit applies to improvements made to a primary residence. Whether installing new VELUX lights or efficient doors, the residence must be the taxpayer’s main home for most of the year.
- Second homes: Secondary homes are eligible, but only under specific provisions. It’s important to verify credits through forms like IRS Form 5695.
- Rental properties: These properties do not qualify for these federal income tax credits under the Energy Efficient Home Improvement Credit (25C). However, other benefits, like depreciation deductions for upgrades, may apply.
Accurate records not only support eligibility but also simplify tax filing. Important documents that help businesses claim energy tax credits include:
- IRS Form 5695
- Receipts and invoices, including those for product costs and labor costs
- Manufacturer’s certification
- Upgrade during the same tax year you claim credit. Credits like the Energy Efficient Home Improvement Credit, for example, are measured annually. As such, delaying a project could push benefits into the following year.
- Consider tax liability: Since most energy-efficiency tax credits are nonrefundable, they can only offset existing tax form liability. If liability is low one year but higher the next year, delaying the project might help maximize liability reductions.
- Prepare in advance: Some credits require a manufacturer’s certification for products like Energy Star-certified exterior windows or hot water boilers. Ordering products early reduces the odds of missing filing deadlines due to supply chain disruptions.
- Plan for multi-year projects: Larger upgrades, like solar panel installations or replacing aging heat pump water heaters, benefit from a phase-by-phase installation. This approach aligns expenditures with yearly credit caps, which spreads savings across multiple years.
Strategy plays a significant role in taking advantage of the skylight tax credit and similar energy-efficient tax incentives.
For many business owners, wading through IRS regulations and tax forms is time-consuming and complicated. Mistakes can mean leaving money on the table or, worse, facing penalties. One of the best ways to maximize benefits while staying fully compliant with the law is working with qualified professionals.
Tax professionals can untangle the complexities of credits like the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit. They know the eligibility requirements, proper documentation processes, and the limits for credits.
Energy efficiency upgrades do more than reduce energy consumption. They can enhance a property’s overall value while aligning with long-term economic and environmental priorities. By making targeted upgrades, homeowners and business owners alike can reap lasting benefits.
A properly installed, energy-efficient skylight can reduce:
- Reduce energy costs by better regulating indoor temperatures and negating the need for artificial light during the day
- Reduce strain on heating and cooling systems thanks to improved temperature regulation, which can improve the lifespan of air conditioners, heaters, and related equipment
- Lower reliance on energy sources like natural gas, propane, and electricity
- Provide tax credit opportunities
- Lower carbon emissions
- Align with national policy
- Encourage broader participation in green energy efforts
The skylight tax credit introduced under the Inflation Reduction Act in 2025 presents a valuable opportunity for business owners and homeowners alike to not only lower energy expenses, but also become forward-thinking leaders in sustainability.
Disclaimers: This article does not constitute legal or financial advice, real or implied. It’s always best to consult with a qualified CPA or tax professional to ensure complete compliance with all current laws and regulations.