Energy-efficient home upgrades can cut utility bills, raise home value and qualify for tax credits to save money now and in the long run.

NEW YORK — Financial management isn't just about preparing for retirement or reducing taxes. It's also about looking for opportunities to save money over time. One way to accomplish this is by saving energy at home. An energy-efficient home is one that uses less energy on a day-to-day basis — and it can be accomplished with some simple lifestyle changes and eco-friendly home improvements. In some cases, these investments even qualify you for a tax credit, which can help defray your upfront costs.

The benefits of an energy-efficient home

The most obvious benefit of an energy-efficient home is that it may help to lower your energy costs. This matters more now than ever, with energy costs across the United States projected to be 10% higher in 2025 compared to just last year. The U.S. Department of Energy estimates that the average energy-efficient home saves up to 25% on utilities compared to similar homes not designed with efficiency in mind. However, the benefits don't stop there.

By lowering energy usage, you can help the planet by reducing your home's greenhouse gas emissions. Your indoor environment might improve as well, with greater air quality and more consistent inside temperatures. Upgrades may even increase your home value, with homes rated as energy-efficient selling for 2.7% above comparable unrated homes.

How to make your home more energy efficient

If you would like to unlock the advantages of an energy-efficient home, here are a few ways to get started:

1. Get a home energy audit. Many local utility companies offer energy audits to help identify areas for improvement, such as air leaks around windows or doors, poor insulation, or inefficient appliances. Starting here can help you pinpoint where to focus your energy improvement efforts.

2. Make some lifestyle changes. While some energy-efficient upgrades cost money, others simply require you to change some of your habits. For instance, turning off your lights, unplugging unused devices, and closing your blinds during the summer to reduce heat transfer are all easy ways to start saving by reducing energy consumption. Other easy fixes include changing your furnace filter regularly, lowering the temperatures on your thermostat and water heater, using low-flow faucets to conserve water, and even planting trees strategically to gain some shade.

3. Use LED lighting. The case for energy-efficient lighting is strong, with LED bulbs using up to 90% less energy and lasting up to 25 times longer than traditional incandescent lighting.

4. Reinsulate. A home's insulation can shrink over time, resulting in heat loss during the winter and heat retention during warmer months. Properly insulating your attic, walls, and floors can cut your energy bills and make your home more comfortable in the process.

5. Replace your windows. Older homes tend to leak two to four times more air than newer homes, so you can improve energy efficiency by sealing leaks with weatherstripping and caulking. If your windows are older, you may also want to consider replacing them. Newer windows rely on more advanced technology that controls heat transfer, which could help reduce your energy usage by up to 30%.

6. Upgrade your appliances. Just like older windows are less efficient, so are older appliances. By switching to Energy Star-certified appliances, you can reduce energy consumption and improve efficiency. Newer refrigerators, for instance, could reduce energy consumption by up to 9%, and newer dishwashers typically use less water and less energy.

7. Review your heating and cooling systems. Upgrading your heating, ventilation, and air conditioning (HVAC) systems can often deliver greater energy efficiency, but there are other changes you can make that also help. For instance, ceiling fans consume 99% less energy than central air conditioning systems. Even switching to a smart thermostat can help by automating and regulating your home's temperature control.

8. Upgrade your water heater. Older water heaters typically hold a reservoir of hot water and expend energy to keep that water hot. Tankless water heaters, however, heat water on demand, which can reduce energy consumption by up to 34%.

9. Go solar. Depending on where you live, you may be able to use solar energy to electrify your home, reducing reliance on the traditional power grid. Installing solar panels is a good way to reduce energy costs and could even result in financial credits if you can sell excess energy back to the grid.

Qualifying for tax credits

Enhancing your home's energy efficiency can deliver ongoing savings over time. You may even be able to defray the initial costs of certain home improvements with the energy efficient home improvement credit. Qualified energy-efficient home improvements made after Jan. 1, 2023, may make you eligible for a tax credit of up to $3,200, claimable for improvements to your primary residence made through 2032. The credit equals 30% of qualified expenses such as home energy audits, residential energy property expenses, and energy efficiency improvements.

The maximum annual credit is $1,200 for energy-efficient property costs and certain energy-efficient home improvements and $2,000 for qualified heat pumps, water heaters, and biomass stoves and boilers. Additionally, the credit has no lifetime dollar limit, which means you can claim the annual amounts for every year you make eligible improvements. That said, beginning in 2025, the credit is only available if the energy-efficient items were produced by a qualified manufacturer, so it's important to check in advance if the items you select qualify.

Bottom line

Making your home more energy efficient can deliver a range of benefits, from reduced utility bills and positive environmental outcomes to potential increases in the value of your home. With available tax credits and potential rebates or incentives from local utility companies, energy-efficient home improvements can be a sound investment that pays off in greater comfort and financial savings over time.

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