The Inflation Reduction Act was signed into law on August 16, 2022. It includes several expanded or extended tax credits, and it also includes additional funding for the IRS. Many provisions within this Act relate to tax incentives available to taxpayers and their families. Tax credits you may have benefited from in the past were, in some cases, set to expire at the end of 2023 but have now been extended through 2034 through this Act.
There are eight areas in your home where you can benefit from a combination of rebates and tax credits included in the Inflation Reduction Act:
- Driveway. Beginning in 2023, the new law provides buyers of qualifying electric vehicles with a tax credit of up to $4,000 for the purchase of a used electric vehicle and up to $7,500 for a new electric vehicle. This credit is only available to electric vehicles whose final assembly took place in North America.
- Thermostat. A typical American household could start saving up to $220 per year over the next decade without having to change a thing thanks to the clean energy incentives of the Inflation Reduction Act that support a grid-wide move to cheaper, cleaner sources of electricity.
- Utility Room. Taxpayers purchasing an energy-efficient heat pump water heater will be eligible for a rebate of up to $1,750.
- Kitchen. A rebate of up to $840 is available for electric stoves, cooktops, ranges and ovens.
- Insulation. Insulation on its own is a sure way to prevent wasted energy and save money. The passage of the Inflation Reduction Act will allow some households to become eligible for a rebate of up to $1,600 for improving their home’s insulation and sealing energy leaks.
- Laundry Room. Although not widely used in the U.S., eligible households switching to a heat pump clothes dryer may be eligible for a rebate of up to $840.
- Air Conditioning. Households using an electric heat pump can qualify for a tax credit of up to $2,000 for equipment installed on January 1, 2023 or later.
- Roof. Solar panels have become a widely used energy saving addition to many homes. The Residential Clean Energy Credit included in this new law provides for a tax credit of up to 30% to households that invest in clean energy such as solar, and it is retroactive to the beginning of 2022. Additionally, the average solar-powered home saves about $300 every year on electricity.
The Inflation Reduction Act also took the Non-business Energy Property Credit and renamed it the Energy Efficient Home Improvement Credit. Starting in 2023, the credit will be 30% of the costs of all eligible home improvements made during the year. Additionally, the $500 lifetime limit on the total credit amount will be replaced with a $1,200 annual limit.
Other commonly used credits were addressed in the Act and include:
- $250 for any exterior door ($500 total for all exterior doors) that meet applicable Energy Star requirements.
- $600 for exterior windows and skylights that meet Energy Star most efficient certification requirements.
- $600 for other qualified energy property including central air conditioners; electric panels and certain related equipment; and natural gas, propane or oil water heaters, oil furnaces or water boilers.
As you can see, there are many facets to the Inflation Reduction Act as it elates to energy incentives, tax credits and rebates.
For more information, contact Lisa Mrkall, CPA, MBA, Principal, Small Business Department at Tronconi Segarra & Associates LLP at 716.633.1373 or lmrkall@tsacpa.com.
