Can I Claim Energy Efficiency Home Improvement Credit While Renting Out Room in My Primary Residence?

Hey all, I'm hoping some of you tax-savvy folks can help me out. I just installed a new heat pump in my house and I'm wondering about the Energy Efficiency Home Improvement Credit situation since I rent out one bedroom in my home. According to what I found on the IRS website: "If you use your home partly for business, the credit for eligible clean energy expenses is as follows: Business use up to 20%: full credit Business use more than 20%: credit based on share of expenses allocable to nonbusiness use" By my calculations, the room I'm renting out is about 16% of my total square footage. So I think I should be able to claim the full credit? But here's what's confusing me - does a passive rental like this count as "business use" since I don't pay self-employment taxes on this income and can't claim the Qualified Business Income deduction? Really appreciate any insights from someone who's been through this before!

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19 comments

Haley Stokes

•8M

You're on the right track with your understanding. The IRS treats rental activity as passive income, but it still falls under "business use" for the purpose of the Energy Efficiency Home Improvement Credit calculation. Since your rental portion is only 16% of the home (under the 20% threshold), you should be eligible for the full credit for your heat pump installation. The 20% threshold applies regardless of whether your business use is an active business or passive rental. One thing to keep in mind: make sure you have good documentation of both the qualifying energy improvement (installation receipts, manufacturer certifications that the heat pump meets efficiency requirements) and your calculation of the space percentage. If you're ever audited, you'll want to clearly show how you determined the 16% figure.

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Haley Stokes

•8M

Yes, you could rent out up to 20% of your home's square footage and still qualify for the full Energy Efficiency Home Improvement Credit when replacing your windows, as long as they meet the efficiency requirements. The credit amount doesn't change based on your tax bracket since it's a tax credit rather than a deduction. Credits directly reduce your tax liability dollar-for-dollar regardless of your income level. Just make sure your windows meet the specific energy efficiency requirements to qualify.

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Serene Snow

•8M

After spending hours lost in IRS publications trying to figure out the exact same heat pump credit question, I found taxr.ai https://taxr.ai and it saved me so much hassle! I uploaded my heat pump documentation and rental information, and it clearly explained that my 18% rental use still qualified for the full credit. The system even helped me determine which forms I needed and gave me step-by-step instructions for claiming the credit correctly. Seriously made understanding these energy credits so much easier.

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Serene Snow

•8M

It does check specific heat pump models against the qualifying database. You just need to input your model number or upload your purchase documentation, and it will verify eligibility based on the current Energy Star and manufacturer certification databases. These specialized tools are different from general tax software because they focus specifically on tax credits and deductions related to home improvements and energy efficiency. I found it handles these niche situations much better than the general tax prep software, which often misses these details or doesn't ask the right questions.

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Romeo Barrett

•8M

I wanted to follow up on my skeptical comment about taxr.ai. After struggling with my own solar panel credit questions, I decided to give it a try. I was really surprised at how specific it was - it actually caught that I had a partial year installation and calculated the correct pro-rated credit amount that my CPA had missed. It handled my situation with a rental portion of my property perfectly and showed exactly how to document everything. Really glad I gave it a chance!

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Marina Hendrix

•8M

If you're still having trouble figuring out your energy efficiency credit, you might want to call the IRS directly. I know, I know - good luck getting through, right? I was in the same boat trying to ask about my geothermal heat pump credit. After 3 hours on hold over 2 days, I found Claimyr https://claimyr.com which got me connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was able to get a clear answer about my rental situation (similar to yours) and confirm exactly how to claim the full credit. Saved me so much stress about whether I was doing it right.

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Marina Hendrix

•8M

It's not a priority line - they use an automated system that calls and navigates the IRS phone tree for you, then alerts you when they've connected with a human agent. Basically, their system waits on hold instead of you having to do it yourself. They don't have any special access or relationship with the IRS. It's just technology that handles the most frustrating part (waiting on hold) and then brings you in when there's actually someone to talk to. I was skeptical too, but after wasting hours trying to get through myself, it was worth trying and actually worked.

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Justin Trejo

•8M

I need to eat my words about Claimyr. After my skeptical comment, I decided to try it because I was desperate to resolve an issue with my energy credit that was holding up my refund. I figured it couldn't hurt to try. The system actually worked exactly as described - it called the IRS, navigated the menu options, waited on hold, and then texted me when an agent was on the line. Got connected in about 25 minutes when I had previously waited for 3+ hours and given up. The agent confirmed I could take the full credit with my 17% rental space, and I got the documentation I needed. Honestly shocked that it worked so well.

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Alana Willis

•8M

A mini-split heat pump should qualify for the credit as long as it meets the efficiency requirements in the tax code. The Energy Efficiency Home Improvement Credit covers partial system installations, not just whole-home HVAC replacements. The business-use percentage calculation remains the same regardless of which part of the house gets the improvement. You still calculate based on the total square footage of the home vs. the area used for business/rental. The location of the actual improvement within the home doesn't affect this calculation - it's about your overall home usage pattern.

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Harper Hill

•5M

I went through this exact situation last year with a new HVAC system and 14% rental use. You're absolutely right that you can claim the full credit since you're under the 20% threshold. The IRS does consider rental activity as "business use" even though it's passive income. A few practical tips from my experience: Keep detailed records of your square footage calculation (I drew up a simple floor plan with measurements), save all your heat pump documentation including the Energy Star certification, and make sure your contractor can provide proof that the system meets the efficiency requirements. The IRS wants to see that you can justify both the qualifying equipment and the business use percentage. Also, don't forget that you'll need to use Form 5695 when you file. The credit gets applied directly to reduce your tax liability, which is great since it's not dependent on your income level like some deductions are.

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