Credits, Credits, Credits, and You Guessed it – More Credits!
There were many new and improved tax credits with the passing of the Inflation Reduction Act of 2022, and most of these improvements were effective starting in 2023. So, as you get ready to file for the 2023 tax season, think back on the year to see if any of these credits apply to you.
Here are four (of many) tax credits that stood out for individual taxpayers:
Energy Efficient Home Improvement Credit
Previously known as the Nonbusiness Energy Property Credit, the Energy Efficient Home Improvement Credit incentivizes homeowners to pay for several types of energy-efficient improvements, such as:
- Exterior windows and doors
- Home insulation
- Heat pumps, water heaters, central air conditioners, furnaces, and hot water boilers
- Biomass stoves and boilers
- Electric panel upgrades
This credit can be used for improvements made to your principal residence or your second home. There is a $1,200 overall annual cap on the credit, so consider spreading out qualifying expenses over several years to maximize the annual credit. These new and improved rules are in effect through 2032.
Residential Clean Energy Credit
This credit is claimed by installing solar panels, but it can also apply to the cost of storage batteries, solar hot water heaters, fuel cells, small wind energy turbines, and geothermal heat pumps. Similar to the Energy Efficient Home Improvement Credit, these items qualify for your principal residence or second home. This credit is extended through 2034 and the credit amounts are updated to 30% for 2022-2032, 26% for 2033, and 22% for 2034. There is no annual or lifetime cap on this credit and any amount of credit not used in the current year will be carried forward.
New Clean Vehicle Credit
Previously known as the New Qualified Plug-In Electric Drive Motor Vehicle Credit, the New Clean Vehicle Credit incentivizes taxpayers to purchase new all-electric vehicles and hybrid plug-ins. The credit maximum remains $7,500, but it now has two components: a $3,750 credit if the electric vehicle complies with the domestic sourcing requirements for critical minerals used in the battery and a $3,750 credit if the electric vehicle satisfies domestic content requirements for battery components.
The income limits to qualify for this credit are $300,000 for married filing jointly, $225,000 for heads of household, and $150,00 for all other filers. The vehicle’s manufacturer suggested retail price (MSPR) cannot exceed $80,000 for vans, sport utility vehicles, or pickup trucks and $55,000 for all other vehicles. This credit is effective from 2023-2032.
Credit for Previously Owned Clean Vehicles
A qualified buyer of a previously owned clean vehicle is allowed a credit equal to the lesser of $4,000 or 30% of the vehicle’s sale price. To qualify as a previously owned clean vehicle, the vehicle must be a vehicle that meets the new clean vehicle requirements and is at least two years old. The income limits to qualify are lower than the New Clean Vehicle Credit at $150,000 for married filing jointly, $112,500 for heads of household, and $75,000 for all other filers. This credit is effective from 2023-2032.
Please contact your tax advisor at KT for more information on how you can take advantage of these credits.