Politics aside about what the recently passed massive Inflation Reduction Act (IRA) is supposed to do, it does offer consumers and businesses substantial incentives to go green by investing in eco-friendly and energy-efficient products.[i] The biggest winners are those already planning home improvements to their personal energy infrastructure. For those who weren’t, the incentives may be enough to get them to pull the trigger.
Here’s how consumers and businesses can capitalize on the tax credits available in the IRA:
Energy Efficient Home Improvement Credit
This energy tax credit program expired at the end of 2021 as the Nonbusiness Energy Property Credit. The IRA has extended the program and made it more all-encompassing, boosting its appeal to homeowners.[ii]
For example, the basic energy credit was increased from 10% to 30% of the costs for eligible home improvements, such as installing energy-efficient insulation, windows, doors, and roofing.[iii] The expanded credit now also applies to the cost of biomass stoves and boilers, electric panels, and home energy audits. However, roofing and air circulating fans are no longer eligible.[iv]
In addition, the new law increases the lifetime cap for energy credit from a $500 lifetime cap to a $1,200 annual limit, enabling homeowners to space their projects over time to claim the maximum credit each year. The lifetime cap of $200 for window replacement was eliminated, making that credit much more valuable.[v]
The improved energy credit is available through 2032.
The Residential Clean Energy Credit[vi]
The Residential Energy Efficient Property Credit has been revised as the Residential Clean Energy Credit with a time extension and a boost in the credit available for energy efficiency and eco-friendly projects. The previous credit of 26% of the cost to install eligible systems using solar, wind, geothermal, biomass, or fuel cell power for electricity or heating water is increased to 30%. The credit, scheduled to be phased out in 2024, has been extended to 2032 and phased out after 2034. The credit also applies to battery storage technology.
EV Tax Credit Expansion[vii]
For electric vehicles placed into service after December 31, 2022, the IRA extends the EV tax credit, worth up to $7,500, until December 2032. In addition, previously owned EVs at least two years old will be eligible for a credit up to $4,000 or 30% of the vehicle’s price, whichever is less.
Starting in 2024, the EV tax credit can be immediately applied to the cost of a vehicle by the dealer. Previously, you had to wait until filing your taxes to capture the credit.
Get Paid to Go Green
The many tax credits in the IRA offer homeowners and drivers an incentive to increase their energy efficiency, which can also benefit them in the long run. While these home improvements or switching to an electric vehicle might not be a financial boon today, locking in today’s prices on energy or saving on gas will certainly yield a return on investment over time.
[i] https://www.pbs.org/newshour/science/what-the-inflation-reduction-act-does-for-green-energy 20 September 2022
[ii] https://www.efile.com/tax-credit/energy-credit/ 20 September 2022
[iii] https://www.kiplinger.com/taxes/605069/inflation-reduction-act-tax-credits-energy-efficient-home-improvements 20 September 2022
[v] https://electrek.co/2022/08/19/us-tax-credits-rebates-climate-law/ 20 September 2022
[vi] https://www.kiplinger.com/taxes/605069/inflation-reduction-act-tax-credits-energy-efficient-home-improvements 20 September 2022
[vii] https://www.npr.org/2022/08/19/1118519199/what-the-inflation-reduction-act-means-for-electric-car-buyers-and-auto-companie20 September 2022