In August 2022, President Joe Biden signed into law the Inflation Reduction Act (IRA), which includes tax incentives you may be able to take advantage of as they relate to energy efficient home improvements and the purchase of electric vehicles.
The IRA expands the energy-efficient home improvement credit and the residential energy clean property credit for 10 years through the end of 2032. If you live in the U.S. and are a homeowner who improves a primary or secondary residence, you may qualify for these credits. Some improvements are limited to principal residence only, so please contact us with any questions. You must complete Form 5696 with your tax return to claim the credits and it is highly recommended that you save the Manufacturer’s Certification Statement on eligible purchases for your records.
The energy-efficient home improvement credit increased from a previous $500 lifetime credit to a $1,200 annual limit. There are no income limits or lifetime limitations. There are specific limits on building components such as doors (up to $250 per door and $500 total), windows and skylights (up to $600 total), and home energy audits (up to $150). Electric or natural gas heat pumps and biomass stoves and boilers have a separate annual credit limit of $2,000. Roofing and air circulating fans will no longer qualify for this credit. Depending upon the mix of these home improvements, a taxpayer may be able to claim a maximum non-refundable credit of $3,200 in a given year, but there is no carryover to future years. A nonrefundable tax credit refers to a decrease in the tax liability of a taxpayer, meaning the amount they owe in income taxes is reduced. This credit can bring the owed amount down to zero, but the excess will not be refunded to the taxpayer.
Taxpayers may also be able to take advantage of the residential clean energy credit if they make improvements such as solar panels, solar water heaters, wind turbines, geothermal heat pumps, fuel cells, and battery storage technology. You can claim the non-refundable credit of 30% of the cost of these items except for fuel cells, which are limited. The credit rate of 30% applies to property placed into service between 1/1/2023 and 12/31/2032. It then falls to 26% for 2033 and 22% for 2034 and expires after 2034. The property cannot be used solely for business. If the home is used partly for business, the credit will be based on the share of expenses allocable to non-business use if the business use is more than 20%. Any excess unused credit can be carried forward to future tax years.
You will find more information about upfront discounts for home energy upgrades via the High-Efficiency Electric Home Rebate Act (HEEHRA) from the link below.
The bill also extends tax credits for buying a new or used electric vehicle (EV) for ten years until December 2032.
You may qualify for a non-refundable credit of up to $7,500 if you buy a NEW, qualified plug-in EV or Fuel cell electric vehicle (FCV). You must buy it for your own use in the U.S. primarily, and your modified adjusted gross income (MAGI)* can’t exceed $300,000 for married couples filing jointly, $225,000 for heads of households, and $150,000 for all other filers. To claim the credit, sellers are required to report your name and taxpayer identification number to the IRS. Also, the vehicle’s retail price can’t exceed $80,000 for larger vans, SUVs and pickup trucks and $55,000 for other vehicles.
Starting in 2023, if you purchase a qualified USED EV or FCV under $25,000 from a dealer, you may qualify for non-refundable credit of 30% of the sale price up to a maximum of $4,000. To qualify for this credit, 1) you must be an individual who is not claimed as dependent on another tax return; 2) you did not own the car initially and have not claimed another used clean vehicle credit in the past 3 years;3) your MAGI* does not exceed $150,000 for married filing jointly, $112,500 for heads of households, and $75,000 for all other filers. You must complete Form 8936, including the vehicle identification number (VIN), and file it with your returns to claim the used clean vehicle credit.
*The MAGI can be used from the year you take delivery of the vehicle or the year before, whichever is lesser.