There Are No Credits Like Energy Credits
With the signing of the Inflation Reduction Act of 2022, the Energy Efficient Home Improvement Credit, previously known as the Nonbusiness Energy Property credit, and the Residential Clean Energy Credit were revived and expanded.
Energy Efficient Home Improvement Credit
The Energy Efficient Home Improvement Credit is applicable only to your primary residence. The credit amount is 30% of the costs of the following improvements, and needs to meet the highest tier of efficiency as established by the Consortium for Energy Efficiency:
- Residential Energy Property
- $1,200 cap for energy property costs including central air conditioners, water heaters, and hot water boilers; includes labor for installation.
- Heat Pumps, Biomass Stoves, and Boilers
- $2,000 cap; includes labor for installation.
- Building Envelope Components
- Exterior Doors – Capped at $250 per door and $500 total.
- Windows – Capped at $600.
- Home Energy Audits
- Capped at $150.
Along with the expansion of the credit, the $500 lifetime credit is no longer applicable as of January 1, 2023. So, even if you have received $500 in the past related to your personal residence, you can now qualify for the new expanded credit.
Residential Clean Energy Credit
The Residential Clean Energy Credit is applicable to your primary residence and secondary home. The credit amount is 30% of the costs of the following improvements:
- Solar electric property
- Solar water heating property
- Geothermal heat pumps
- Fuel cells
- Battery storage technology
These energy credits are nonrefundable, and any amount not used in the current year will be carried forward.
Claiming the Credit
To claim the credit, provide your tax professional with a vendor itemized list of property that was purchased, including the amount paid, and confirmation of installation before the end of the tax year.
Clean Vehicle Credits
The Inflation Reduction Act of 2022 also expanded the New Clean Vehicle Credit and introduced the Used Clean Vehicle Credit. Both credits are nonrefundable, any amount not used in the current year will be carried forward and are only for purchases beginning in 2023. Purchases must be from a dealer, for primary use in the U.S., and must not be for the purpose of resale.
The New Clean Vehicle Credit amount is limited to $7,500 and must meet the following qualifications:
- The taxpayer’s adjusted gross income thresholds may not exceed $150,000 for single filers and $300,000 for married filing jointly.
- For vehicles placed in service from January 1 to April 17, 2023, the credit base amount is $2,500 with $417 for battery capacity of at least 7 kilowatt hours and an additional $417 for each kilowatt hour of battery capacity beyond 5 kilowatt hours.
- For vehicles placed in service from April 18, 2023, and after, the credit is $3,750 if critical mineral requirements are met and another $3,750 if battery component requirements are met.
The Used Clean Vehicle Credit amount is 30% of the sales price up to a maximum amount of $4,000 and must meet the following qualifications:
- The taxpayer must not be the original owner.
- The taxpayer must not be claimed as a dependent on another person’s tax return.
- The taxpayer must not have claimed another used clean vehicle credit in the 3 years before the purchase date.
- The taxpayer’s adjusted gross income thresholds may not exceed $75,000 for single filers and $150,000 for married filing jointly.
- Have a sale price of $25,000 or less.
- Have a model year at least 2 years earlier than the calendar year when you buy it. For example, a vehicle purchased in 2023 would need a model year of 2021 or older.
- Must not have been transferred to a qualified buyer after August 16, 2022.
Claiming the Credit
Taxpayers must use the U.S. Department of Energy website, https://fueleconomy.gov/feg/tax2023.shtml, to confirm the qualification of a vehicle. Taxpayers must also confirm that the seller reported the information, name, and social security number of the buyer to the IRS and provide the Motor Vehicle Purchase Agreement.
If you have any questions on any of these credits, speak with your tax professional at KT to see how it may benefit you.