How the OBBB Act Changed Home Improvement Tax Credits
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Green Credits Have Been Removed | The Upside for Rental Owners | SALT Deduction Cap Increase | What This Means If You’re Planning a Renovation | Why This Matters
After the One Big Beautiful Bill Act (OBBB Act) was signed on July 4, 2025, changes like income tax changes, permanent bracket extensions, boosted SALT deductions and no tax on tips took the forefront. What was overlooked was a renovation of every major tax incentive tied to home improvement, energy upgrades and residential construction.
If you own a home, rent one, or are thinking about renovating, here’s how the changes made affect you.
Green Credits Have Been Removed
For the majority of the last decade, the Energy Efficient Home Improvement and Residential Clean Energy tax credits made energy-efficient home upgrades a smart financial choice for many Americans.
Unfortunately, the OBBB Act ended both of these credits, effective December 31, 2025. If you had plans to install solar, upgrade your HVAC, or swap out your windows using these credits, the window has closed. Systems installed in 2026 and after no longer qualify. It’s one of the worst recent setbacks for consumer clean energy incentives, speeding up expirations that had originally been set for 2032 or 2034 under the Inflation Reduction Act.
The credit for builders of energy-efficient new homes (Section 45L) has been extended a little longer, but not significantly, terminating for homes acquired after June 30, 2026.
The Upside for Rental Owners
The OBBB Act is not entirely bad for homeowners. There are new tax incentives if you own rental properties or have real estate investments.
100% Bonus Depreciation
100% bonus depreciation is back and permanent. For qualifying property placed in service after January 19, 2025, landlords and real estate investors can once again deduct the full cost of eligible assets the year they bought it, rather than spreading deductions out over years. This means new appliances, flooring, HVAC equipment, and other shorter-lived property in a rental home can be fully expensed the year of purchase. This is good news for landlords who have just renovated a unit and can use this addition to accelerate their tax savings.
Section 179 Expensing Limit Increased
The Section 179 expensing limit also jumped significantly from about $1.22 million up to $2.5 million, with the phase-out threshold now at $4 million. Smaller real estate investors and property managers who were capped by the old limits now have much more room to play with.
Treatment for interest expense deductions under updated Section 163(j) rules has also improved, which means real estate investors who finance improvements may be able to deduct a greater portion of their interest costs in the future.
SALT Deduction Cap Increase
One change that will directly benefit many homeowners who itemize their deductions is the raised SALT cap. The $10,000 limit on state and local tax deductions temporarily climbs to $40,000 through 2029, with a 1% annual inflation adjustment. The higher cap phases out for households earning more than $500,000, but the floor never drops below $10,000.
For the average homeowner paying high property taxes in a high-cost state, this is a meaningful amount of money they are getting back in their tax return. Coupled with a slight increase in the standard deduction ($31,500 for married filers in 2025), the OBBB Act offers meaningful relief for personal taxes even though it removes green credits.
What This Means If You’re Planning a Renovation
If you were considering energy upgrades, the federal tax incentive is gone. That doesn’t mean upgrades are a bad idea. Green renovations still provide:
- Lower utility bills
- Improved home comfort
- Potential increases in resale value
Check whether your state offers its own energy credits. Several states have tried to make up for the OBBB Act’s discontinuation of the green credits by replacing the incentive with their own.
Medical Modifications
If you’re planning the following medical modifications, those costs may still qualify as medical expense deductions if you itemize and the total medical expenses exceed 7.5% of your adjusted gross income.
- Wheelchair ramps
- Widened doorways
- Grab bars
- Handrails
Why This Matters
The OBBB Act gave either good or bad news to homeowners, depending on which group you are a part of.
The financial landscape for homeowners has changed as the government is moving away from providing green energy incentives. Homeowners who were planning to use green credits as a down payment on a more energy-efficient home no longer have that option. On the other hand, investors and landlords got permanent bonus depreciation, high-income homeowners in expensive states got SALT relief, and you can now take deductions on tips and overtime income.
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