The Inflation Reduction Act of 2022, signed into law by President Biden, includes energy credits for taxpayers. Starting in 2023, the Energy Tax Credits program is set to offer a range of incentives for purchasing electric vehicles and making energy-efficient home upgrades. Energy-efficient improvements, like heat pumps, skylights, and insulation, could allow you to take advantage of the credits and save money.
This article will provide an overview of the Energy Tax Credits program and offer tips for successful professionals looking to maximize their savings on energy-efficient upgrades. We discuss the credits available, including the Residential Clean Energy Credit and the Energy-Efficient Home Improvement Credit. We also explore rebate programs and other incentives for energy-efficient homes and electric vehicles.
To be eligible to claim the residential Energy Tax Credits, you must make the improvements to a principal residence in the United States. Landlords, for example, cannot claim credits for improvements to homes they rent out. You don’t have to be the homeowner, though: Renters may also be eligible to claim the credit if they pay for their energy-efficient improvements and the property is not subject to a lease.
By understanding the Energy Tax Credits program and taking advantage of these incentives, you can save money on energy-efficient upgrades and make your home or vehicle more energy-efficient. Doing so could help you reduce your monthly energy costs and contribute to the overall goal of reducing energy consumption and protecting the environment.
Credits for Residential Clean Energy
One of the credits available through the Energy Tax Credits program is the Residential Clean Energy Credit. This credit is available for homeowners who install qualifying clean energy equipment in their principal residence from 2022-2032.
Qualifying clean energy equipment includes costs of items like a geothermal heat pump, solar electric property, or battery storage technology. To be eligible for the credit, the equipment must meet specific energy efficiency standards set by the Department of Energy. The credit is equal to 30% of the qualified expenditure, though the credit for fuel cells is further limited to $500 for each kilowatt of capacity.
To determine if your equipment is eligible for the residential clean energy credit, you can check the Energy Star website or consult a professional tax advisor. It is important to remember that the credit is only available for equipment installed in your principal residence and not for rental properties or second homes.
Credits for Residential Energy Efficiency
Another credit available through the Energy Tax Credits program is making energy-efficient improvements to your home. The credit for energy-efficient property, formerly known as the Nonbusiness Energy Property Credit, is available for homeowners who make qualifying improvements, such as installing energy-efficient exterior windows and skylights, insulating their home, or sealing air leaks.
The credit is equal to 10% of the cost of the improvement, up to a maximum credit of $1,200 per taxpayer per year. There are further limitations on specific improvements, such as $600 for exterior windows and skylights, $250 for exterior doors, and a $2,000 annual limit on costs incurred for some heat pumps, heat pump water heaters, and biomass stoves and boilers. If you have a home energy audit conducted by a certified auditor, the credit can be increased by as much as $150. It is available for improvements made to your principal residence and not for rental properties or second homes.
To claim the residential energy efficiency credit, you must complete Form 5695 and submit it with your tax return. You must keep receipts and documentation of your energy-efficient improvements, as you may need to provide these when claiming the credit.
Taking advantage of the credits for residential energy efficiency or clean energy could save you money on energy-efficient upgrades and reduce your monthly energy bills. This can be a valuable way to save on energy costs and make your home more energy efficient.
Credits for Electric Vehicles
In addition to credits for residential energy efficiency, the Energy Tax Credits program extends the credit for individuals who purchase a qualifying electric vehicle from 2023-2032. This credit is available for electric vehicles assembled in America meeting specific energy efficiency standards, and it is equal to the cost of the vehicle, up to a maximum credit of $7,500.
There was previously a cap on manufacturers wherein you weren’t eligible for the full credit if the manufacturer had sold more than 200,000 vehicles, but that was lifted with the passing of the Inflation Reduction Act beginning in 2023.
While the manufacturing cap was done away with, the legislation has instituted a price cap for vehicles to be eligible for the credit. The cap is either $55,000 or $80,000 MSRP depending on the type of vehicle.
One more new cap is on the modified adjusted gross income of taxpayers who can claim the credit. The amounts vary by filing status and for new and used vehicles. Those filing single must have a MAGI under $150K to claim the credit for new cars and $75K for used cars. Those who are married filing jointly must have a MAGI under $300K for new cars and $150K for used cars.
Another big change, as mentioned in the income caps above, is the addition of a credit for purchasing used EVs. The credit begins in 2023 and is limited to the lesser of $4,000 or 30% of the purchase price. Several requirements must be met, such as the car being at least two years old and less than $25,000.
Further requirements are related to the location of the battery assembly and sourcing of critical minerals. This will not be enforced until March, and we are waiting for the Treasury Department to provide further guidance. Batteries cannot be sourced from countries of concern beginning in 2024, and minerals cannot be sourced from countries of concern beginning in 2025.
By taking advantage of the credit for electric vehicles, you can save money on the cost of a qualifying electric vehicle and reduce your monthly energy costs. This can be a valuable way to save on energy costs and contribute to reducing energy consumption and protecting the environment.
State and Local Rebates
Lastly, several state and local rebate programs are available for energy-efficient homes and vehicles. These programs offer rebates and other incentives for homeowners and individuals who make energy-efficient home improvements or purchase qualifying electric vehicles.
To find state and local rebate programs in your area, you can check with your state energy office or search online for energy-efficient rebates and incentives. Some states offer additional credits or deductions on your state taxes for energy-efficient improvements or electric vehicles.
To claim a state or local rebate, you may need to submit documentation of your energy-efficient improvements or electric vehicle purchase and proof of residency or ownership. It is important to carefully review each rebate program’s requirements and eligibility criteria to ensure that you can claim the rebate.
You can save even more money on energy-efficient upgrades and electric vehicles by taking advantage of state and local rebate programs. These programs can be a valuable way to save on energy costs and make your home or vehicle more energy efficient.
Conclusion
The Energy Tax Credits program offers a range of incentives for individuals who make energy-efficient upgrades to their homes and vehicles. From credits for residential clean energy to credits for electric vehicles, you have many ways to save on the cost of energy-efficient improvements.
In addition to the credits available through the Energy Tax Credits program, several state and local rebate programs are available for energy-efficient homes and vehicles. By understanding the credits and rebates available and taking advantage of these incentives, successful professionals can save money on energy-efficient upgrades and make their homes and vehicles more energy-efficient.
Disclosure: Don’t take anything we say as Tax or Legal Advice. We are not licensed as CPAs, tax preparers or attorneys.
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