Tax Credits vs. Rebates: What’s the Difference?
Upgrading your home for energy efficiency can be expensive, but tax credits and rebates can help lower the cost. Tax credits reduce the amount of income tax you owe—if you spend $1,000 on a qualifying upgrade and get a 30% tax credit, you’ll owe $300 less in taxes. You claim these when you file your taxes.
Rebates, on the other hand, give you money back sooner—sometimes as an instant discount or a check after purchase. These are often offered by utility companies or state programs and don’t require waiting until tax season.
Using both together? Even better. Stack your savings and make upgrades more affordable! It's important to note that the tax credit applies to your cost after any rebates have been applied.
Tax Credits
Tax credits are a powerful way to offset the cost of energy-efficient home upgrades, but they come with specific rules. Unlike deductions, which reduce taxable income, tax credits directly lower the amount of tax you owe, dollar for dollar. For example, if you qualify for a $2,000 tax credit and owe $5,000 in taxes, your bill drops to $3,000. However, most energy tax credits are nonrefundable, meaning they can reduce your tax liability to zero but won’t provide a refund beyond that. Some credits, like those for solar installations, allow carryover, meaning if your credit exceeds your tax liability, the excess can be applied to future tax years. Eligibility often depends on factors like the type of upgrade, efficiency ratings, and installation date, so keeping receipts and manufacturer certification statements is crucial. To claim a tax credit, you typically need to file IRS Form 5695 and meet all program requirements.
Rebates
Rebates provide upfront savings or money back on energy-efficient home upgrades, making them a great way to reduce costs without waiting for tax season. Unlike tax credits, which lower your tax bill, rebates are direct incentives—often provided by utility companies, state programs, or manufacturers—that reduce the purchase price or reimburse part of the cost after installation. Some rebates are instant, applied as a discount at checkout, while others require submitting receipts and paperwork for reimbursement. Programs may have specific eligibility criteria, such as income limits, product efficiency ratings, or working with approved contractors. Unlike tax credits, which are claimed on your tax return, rebates typically require applying within a set timeframe after purchase. Since rebates and tax credits can often be stacked, they’re a great way to make home energy upgrades even more affordable.
Who offers incentives?
There's an array of Tax Credits, Rebates and other incentives available on the utility, federal, and community scale.
We've linked to the websites of the incentive providers below and broken down the main categories that they fund. Remember to keep all receipts for any home improvements you make and any associated products as they are necessary to get your rebate. To understand what particular incentives are available for your specific project please contact us to get customized advice!
NorthWestern Energy
People who have NWE as their utility provider can take advantage of their rebate program which covers a wide array of upgrades one might undertake. These range from building envelope upgrades, HVAC, all the way to new appliances and lighting! Many of these rebates are small dollar amounts, but everything helps!
Here is a PDF listing all of NWE's Rebates and their requirements. All of these rebates and their forms can be found on their website. If you're having trouble filling them out feel free to contact us for assistance!
Missoula Electric Cooperative
If you have MEC as your utility provider, you can utilize their rebates in your home energy efficiency projects. Most of their rebates require you to be using electrical heat to qualify. While more limited in scope, many of them are more substantial than offerings from other utilities!
Here is a PDF Listing all of MEC's Rebates and their requirements. These rebates and their associated forms can be found on their website. Please contact us if you need assistance filling out the forms.
Federal Incentives
Beyond utility offerings, homeowners can also take advantage of a variety of federal tax incentives. These incentives cover a wide range of energy-saving home improvements, including insulation and air-sealing materials, heat pumps, high-efficiency furnaces, and new windows and doors. These programs help offset product costs, making energy-efficient upgrades more affordable.
We've compiled a document of these Energy Star Tax credits and some example scenarios of how to best maximize your savings here. their website has all of this information as well as all of the required forms and a product guide to help you find qualifying products!
These tax credits have an annual limit of $3200 divided into two categories:
- $2000 tax credit up to 30% of product costs for upgrading your existing heating and cooling to air source heat pump, swapping to a biomass space/water heating solution or upgrading to heat pump water heater.
- $1200 tax credit up to 30% of product costs for other home efficiency upgrades.
The Residential Clean Energy Equipment Upgrade is 30% tax credit for the cost of Solar Energy Systems, Geothermal Heat Pumps, Small Wind Turbines, Fuel Cells and battery Storage Systems. This credit differs from other tax credits in a few ways. Most notably it has no cap on the size of the credit, additionally it rolls over between tax years! It can be applied to new construction and it doesn't have to be the primary place of residence. This credit is widely used to help lower the cost of putting solar on your home!
Local Incentives
Missoula County currently has funding to help subsidize the cost of upgrading to a Heat Pump Water Heater. A rebate of $500 is available to Missoula County residents who upgrade their Water Heaters and can even be applied retroactively, although it is strongly suggested to get the paperwork sorted before installation. Find more info on this rebate here.
