Inflation Reduction Act

From electric vehicles to solar panels, “going green” can offer both environmental and financial benefits.  With global conflicts and increased gas prices, now may be the time to explore the options that will benefit your environment and save you money.

Below is a summary of tax credits that may be available to you as part of the Inflation Reduction Act.

 

Electric Vehicle Tax Credits

Fully electric vehicles (EV) have come a long way since they were first introduced – they now offer sportier models, more efficient batteries, and faster charge times, which allows you to travel farther on a single charge. Since the engines do not use gas, they can potentially save you thousands of dollars in fuel savings per year on gas alone.

For any EV purchased (entered into a written, binding contract) before August 16, 2022, the existing rules remain in place: you may be eligible for a non-refundable tax credit of up to $7,500, regardless of your income. Certain manufacturers, such as Tesla and GMC, are no longer eligible because they exceed the sales cap.

For EVs purchased and delivered after August 16, 2022 but before December 31, 2022, the same rules apply with one major exception: Only EVs for which final assembly occurred in North America are eligible. See the U.S. Department of Energy Alternative Fuels Data Center for a list of which models may qualify based on their final assembly location.

EVs purchased after December 31, 2022 have new credit requirements, which include:

  • Restrictions on which EVs are eligible based on what percentage of battery materials and components or processed, extracted or made in North America or a country in which the U.S. has a free trade agreement
  • Creates a new maximum price limit on the EV to qualify for the credit – $55,000 for a sedan or $80,000 for SUV/pickup trucks/vans
  • Establishes income limits to qualify for the credit – a maximum AGI of $300,000 for joint filers, $225,000 for Head of Household, and $150,000 for all others
  • Removes all manufacturer sales caps so Tesla, GMC and others will be eligible again, as of January 1, 2023
  • Establishes a new credit for up to $4,000 for purchasing used EVs, also subject to income limits of $150,000 for joint filers, $112,500 for Head of Household, and $75,000 for others
  • Establishes a new credit specifically for business vehicles purchased after December 31, 2023, with no income limits, no caps on the purchase price, and no manufacturer sales caps. The credit will be $7,500 for EVs less that 14,000 lbs and $40,000 for all other vehicles.
  • Starting in 2024, you can transfer the credit to the dealership instead of waiting to file tax returns. More guidance will be issued as to how this will be implemented
  • For the income phase-outs, taxpayers can use the LESSER of their AGI from either the current year (in which they purchased the EV) or the prior year

Note that this credit remains non-refundable and there is no carry-over to future years. Also, there is no credit for leasing a car. When you lease, the dealership is entitled to the credit.

Updated information regarding EV tax credits is available in the IRS website: Plug-In Electric Drive Vehicle Credit

 

Energy Efficient Home Improvements

Installing equipment such as solar panels, solar hot water heaters, certain wind turbines and fuel cells may be an effective way for you to lower your utility bill and potentially save on your taxes. The Inflation Reduction Act of 2022 expanded the following tax incentives:Energy Efficient Home

  • Increased the maximum credit from $500 per lifetime to $1,200 per year
  • Applies to property places in service after December 31, 2022, and extended the credit through December 31, 2032
  • Credit is capped at the lesser of 30% of your cost or $1,200 total – across all improvements (except for heat pumps, which are capped at the lesser of 30% of your cost or $2,000)
  • If your utility company offers a rebate for installing energy-efficient improvements, you’ll need to deduct that from your cost before calculating your 30% tax credit
  • Projects that began construction before 2025 (2035 if geothermal property) and are placed in service after 2021 are eligible for a 30% credit. There is no longer a phase-out provision in place
  • For projects placed in service in 2021 or earlier, prior rules remain in place, and the credit is reduced to 26%. For projects placed in service after 2024, a similar credit remains with a few new stipulations.
  • You’ll need to have a manufacturer’s statement that certifies the components meet the requirements

For current information on the tax credits available in 2022, visit Energy Star.

The table below details the calculations for each type of energy-efficient improvement:

 

Type of Improvement Credit Rate Max Annual Credit Qualifications
Windows 30% of cost $600 Energy Star most efficient
Exterior Doors 30% of cost $250 per door; max of $500 total Energy Star
Insulation 30% of cost $150 Meet criteria from Internation Energy Conservation Code
Heat pumps; biomass stoves and boilers 30% of cost $2,000 but does not count towards the combined annual max of $1,200. For example, you could get $1,200 of credits from windows, doors, and insulation PLUS $2,000 for a heat pump Highest efficeincy tier established by Consortium for Energy Efficiency
HVACsm water heaters, furnaces, or boilers 30% of cost $600 Highest efficeincy tier established by Consortium for Energy Efficiency
Upgrades to electric panel to at least 200 amps 30% of cost $600 Panel upgrades must be installed as part of and to enable another energy efficient improvement
Home energy audits 30% of cost $150 TBD