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I'm hoping to replace some older windows with energy-efficient ones. The new windows would qualify for the Energy Efficient Home Improvement Credit. The concern I have is timing: the company I'm buying the windows from (and who would install those windows) would like a deposit before starting. Based on their workload, the windows would not be installed for several weeks; their estimate is March of next year. If I pay a deposit this year, but the windows aren't "placed in service" until next year, can I claim this year's deposit as part of the following year's tax credit?

The closest wording I can find from the IRS website is on the above web page:

The credit is allowed for qualifying property placed in service on or after Jan. 1, 2023, and before Jan. 1, 2033.

(my emphasis on the timing). This particular use-case isn't covered by the related FAQ.

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  • As long as you only claim it once, the worst the IRS is likely to do is grumble.
    – keshlam
    Nov 9 at 15:41

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Note that labor costs for installation don't qualify for the credit (see: Qualified Expenses and Credit Amounts; Building Envelope Components. Labor costs for installing building envelope components don't qualify for the credit.).

Even if the deposit is for the qualifying product itself and not labor or to hold your place in line, payment timing is irrelevant. What matters is when the property is placed in service (i.e. installation is completed and the property is ready to be used). If the installation is expected to be in March 2024, the credit would apply for 2024.

As a kind of ridiculous example, say you bought and paid for qualifying windows in 2023, 2024, and 2025 with the aim of maximizing the credit while staying under the annual limits, and you install the windows in 2025. The credit applies to 2025 only, the year the windows were placed into service. If you had the same purchase schedule but installed the windows as you bought them (i.e. the windows you bought in 2023 are installed in 2023, etc.), then the credit would apply over multiple years since you installed them over multiple years.

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