The Inflation Reduction Act was signed into law by President Biden on August 16, 2022. Although there are a few tax implications for individuals, there are some great tax savings for energy efficient related expenditures. Below you will find a summary of some key benefits.
Clean Vehicle Credit
Effective with the 2023 tax year, the new law allows credits for used vehicles as well. In general, for new purchases, the tax credit is up to $7,500 for qualifying electrical vehicles. For used, up to $4,000. In 2024, this credit is designed to be issued through dealerships at the time of sale. One qualification for this credit requires that the vehicle has final assembly in North America so some brands will not qualify until their American plants begin operating. Additional limitations may apply depending on an individual’s unique tax status.
Energy Efficient Home Improvement Credit
The newly named credit, the ‘Energy Efficient Home Improvement Credit,’ has also been extended through 2032. Starting in 2023, the credit will be equal to 30% of the cost of eligible home improvements (in lieu of the old 10% limitation). Furthermore, the $500 lifetime limit has been replaced with a $1,200 annual limit. So, if possible, you could spread out your qualifying home projects to be able to claim the maximum credit each year. Additional annual limits for specific types of qualifying improvements are still in play but the amounts have been modified.
- For 2022, the old rules apply.
- For products placed in service after 2024, credits are allowed if the manufacturer created a product identification number. This number must be included on your tax return for the year that you are claiming the credit.
Residential Clean Energy Credit
The final credit that also received a name change, the ‘Residential Clean Energy Credit,’ has been extended a few years more than the rest, through 2034. The Inflation Reduction Act increased the credit for installing clean household energy such as solar, wind, or geothermal on your property. From 2022-2032, the credit has increased to 30%, with no dollar limitation on the amount of the credit. This credit also applies to battery storage technology. However, starting in 2023, the battery storage no longer needs to be charged with onsite solar only. It can qualify as long as the capacity is 3000 kilowatt hours, regardless of energy source.
- For 2033, the credit falls back to 26%.
- For 2034, the credit drops further, down to 22%.
We Can Help
If you have any questions about these tax credits in the new year, please connect with your Soundmark advisor or our office. We would be happy to help you navigate the tax legislation.
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