Homeowners and Car Buyers can Save with New Energy Tax Credits as part of the New Inflation Reduction Act
The Inflation Reduction Act was just signed into law on August 16, 2022. This sweeping law covers many areas, but one that we believe to be of interest to most Americans is how homeowners and car buyers can save money by going green. Below are a few highlights of the energy tax credits that can be earned.
If you are considering making any of these home improvements or vehicle purchases, you may want to consider holding off until next year to benefit from these tax credits.
Homeowners can save on taxes with energy-efficient home improvements.
There are new credits available for tax year 2023, with a new limit $1,200 annual instead of the $500 lifetime (which was applicable under prior law), including:
- $150 for home energy audits;
- $250 for an exterior door ($500 total for all exterior doors);
- $600 for exterior windows and skylights; central air conditioners; electric panels and certain related equipment; natural gas, propane, or oil water heaters; natural gas, propane, or oil furnaces or hot water boilers; and
- $2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and boilers (for this one category, the $1,200 annual limit may be exceeded).
Additional tax savings include clean energy credits for solar panels and solar energy.
Previously, the tax credit was worth 26% of the cost to install qualifying systems that use solar, wind, geothermal, biomass or fuel cell power to produce electricity, heat water or regulate the temperature in your home. The credit for fuel cell equipment was limited to $500 for each one-half kilowatt of capacity. This credit amount was scheduled to drop to 23% in 2023 and then expire in 2024. Under the Inflation Reduction Act, the credit amount jumps to 30% from 2022 to 2032. It will then fall to 26% for 2033 and 22% for 2034. The credit will expire after 2034.
Car buyers can get immediate tax credits with electric vehicles.
There’s a Electric Vehicle Credit on new EV of up to $7,500 that runs for 10 years (2023-2032) and up to $4,000 on the purchase of a used electric vehicle, but there are a number of limitations including AGI caps:
- If you’re single, and your modified adjusted gross income is over $150,000, you won’t qualify for the EV tax credit.
- The income limit for married couples who are filing jointly is $300,000.
- And if you file as head of household and make $225,000 or more, you also won’t be able to claim the credit.
Beginning in 2024, these tax credits will be available immediately, at the time you buy the vehicle, rather than waiting until you file your tax return.
Save your receipts and provide to our tax advisors at tax season.
Our tax advisors will apply these tax credits with your details receipts, as permitted under tax laws. If you have any questions regarding this new law and energy tax credits, feel free to contact one of our tax professionals at 919-465-1265.
Tax return preparation and bookkeeping services offered through Lifetime Tax Management are separate and unrelated to Commonwealth. Lifetime Tax Management and Commonwealth are separate and unaffiliated entities.