The Inflation Reduction Act (“IRA”), signed on August 16, 2022, offers taxpayers several tax savings opportunities for investments in energy efficient home and business improvements, as well as “clean” vehicle purchases.
Credits for INDIVIDUALS
Energy Efficient Home Improvement Credit (formerly known as the Nonbusiness Energy Property Credit)
The “IRA” extended the tax credit available to homeowners who make energy efficient improvements to their homes.
The credit remains at 10% of qualified energy efficiency improvement costs up to $500 (lifetime limit) for improvements placed in service in 2022.
Beginning in 2023, the Energy Efficient Home Improvement Credit replaced the $500 lifetime credit cap with $1,200 aggregate annual limits and increased the credit to 30% of the cost of qualified energy efficiency improvements. As an added bonus, qualified heat pumps and biomass stoves/boilers have a separate aggregate annual limit of $2,000. Thus, the maximum total credit may be as high as $3,200. The annual limits for certain types of improvements also increased in 2023: $500 for all exterior doors, $600 for all exterior windows, and $600 for each qualified residential energy property.
Wondering whether the credit is available for improvements made to a second home or rental property? You’re in luck! While the credit for qualified building envelope components (doors, windows, insulation) is only available to the home owned and used as the principal residence, the credit for energy property expenditures (water heaters, air conditioners, heat pumps, biomass stoves/boilers) can be claimed on a secondary home or rental property.
The Energy Efficient Home Improvement Credit is a nonrefundable credit without carryover.
Residential Clean Energy Credit (formerly known as the Residential Energy Efficient Property Credit, aka the Solar Credit)
The “IRA” also extended the Residential Clean Energy Credit until the end of 2034.
The credit is 30% of the cost of eligible expenditures on a home that is owned or rented through the end of 2032, then phases down to 26% in 2033 and 22% in 2034. The qualified residential clean energy expenditures include solar panels, solar water heaters, fuel cell property, small wind energy property, geothermal heat pumps, and battery storage (new in 2023).
The Residential Clean Energy Credit is a nonrefundable credit with an indefinite carryover.
Clean Vehicle Credit (formerly known as the Qualified Plug-In Electric Drive Motor Vehicle Credit)
“IRA” extended and modified the Clean Vehicle Credit until the end of 2032.
The maximum amount claimable for the Clean Vehicle Credit is $7,500. For 2023, the rules have been adjusted to increase the battery capacity to 7 kilowatt hours (5 kwh in the prior year). The gross vehicle weight requirement remains at 14,000 pounds and the 200,000-unit per manufacturer limit has been eliminated. Additionally, the following requirements must be met:
- The manufacturer’s suggested retail price may not exceed $80,000 for vans, SUVs, and pickup trucks, or $55,000 for other vehicles.
- The vehicle must be made by a qualified manufacturer and undergo final assembly in North America
- No credit is available for taxpayers with adjusted gross income (AGI) exceeding $300,000 for married couples filing jointly, $225,000 for heads of household, or $150,000 for all other filers.
Below are links to determine whether your vehicle is manufactured by a qualified manufacturer and assembled in North America.
Manufacturers and Models for New Qualified Clean Vehicles Purchased in 2023 or After
Electric Vehicles with Final Assembly in North America
This credit is nonrefundable and cannot be carried over.
Taxpayers who purchased qualified vehicles before “IRA” and who will not receive the car until a later date due to supply chain issues are still able to treat the vehicle as having been placed in service prior to August 16, 2022, if they entered into a binding written contract prior to August 16, 2022. Taxpayers who purchase and take possession of a new qualifying electric vehicle after August 16, 2022, and before January 1, 2023, apply the pre-“IRA” ’22 rules to determine the credit, with the exception that the car’s final assembly point must be in North America.
A new credit of up to $4,000 is also available for the purchase of a previously owned clean vehicle, subject to income limitations, through 2032.
Credits for BUSINESSES
The Qualified Commercial Clean Vehicle Credit
A credit is available for qualified clean vehicles purchased after December 31, 2022 and before 2033, and used in a trade or business. The credit is equal to the lesser of 15% of the vehicle’s basis (30% if the vehicle is not powered by a gasoline or diesel internal combustion engine); OR the excess of the vehicle’s purchase price over the cost of a comparable vehicle in terms of size and use.
The Energy Investment Tax Credit
The IRS Section 48 Energy Credit has extended the tax credit to property under construction before January 1, 2025 (previously scheduled to sunset on January 1, 2024). Qualified property has been expanded to include energy storage technology, qualified biogas property, microgrid controllers, and interconnection property.
Going Green?
We encourage our clients to reach out if they feel they may benefit from these credits. Realize is available to help you make the best of your options in the best interests of the planet.
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