One of the biggest headlines of the Inflation Reduction Act was the introduction of several new energy tax credits. These credits are geared toward helping Americans save by making choices that positively impact the environment.

The energy credits introduced in the Inflation Reduction Act can help save you money on your taxes when buying a new electric vehicle or making energy-efficient improvements to your home. This article looks at the new energy-related tax credits introduced in the act.

Clean Vehicle Credit

The clean vehicle credit makes several key changes to the existing electric vehicle tax credit. The changes include:

  • Expands the definition of the electric vehicle tax credit to “clean vehicles.” This now includes hydrogen cell fuel cars and plug-in hybrids with a battery of up to seven-kilowatt hours.
  • For ten years, a tax credit for up to $7,500 for any clean vehicle placed into service after December 31, 2022. In addition, vans, pickup trucks, and SUVs must have an MRSP of less than $80,000, and cars must have an MRSP of less than $55,000.
  • A credit for a used clean vehicle two years or older for up to $4,000 or 30% (whichever is less). The car must cost $25,000 or less.
  • Beginning in 2024, you will be able to claim the credit at the dealership upon purchase of a qualified car.

For those of you who want to get ahead of the boom of clean vehicles, If you have a binding sales contract in 2022 for a car that will be placed into production in 2023, you can still claim the credit on your 2023 tax return.

You can only claim the credit if you have an adjusted gross income (AGI) of less than $150,000 as a single, $300,000 as a married couple, and $225,000 as head of household.

Alternative Fuel Refueling Property Credit

If you purchase an electric car, you need to have some way to charge it! The Inflation Reduction Act accounts for this by offering homeowners a qualified alternative fuel vehicle refueling property.

The expired credit was brought back to life in 2032 with the passing of the Inflation Reduction Act. The credit is worth 30% of the cost of qualified alternative vehicle refueling property up to $1,000. This can include equipment to recharge a vehicle, dispense an alternative fuel, or even bidirectional charging equipment.

Energy Efficient Home Improvement Credit

The Inflation Reduction Act revives and revamps an old credit that gives homeowners a tax break for taking on home improvement projects to make homes more efficient.

Beginning in 2023, homeowners can claim up to 30% of the costs of eligible improvements made up to $1,200 per year. This is much better than the old credit that only allowed homeowners to claim a $500 credit once in their lifetime.

Some of the eligible improvements include:

  • $250 for each exterior door with a maximum of $500
  • $150 for home energy audits
  • $2,000 for electric or natural gas water heaters and heat pumps, biomass stoves, and boilers (the $1,200 annual credit may be exceeded for this category).
  • $600 for;
    • Central air conditioners
    • Electric panels and related equipment
    • Natural gas, propane, or oil water heaters, furnaces, or hot water boilers

Starting in 2024, to claim the credit, the manufacturer must provide a product identification number that needs to be reported when claiming the credit on your tax return.

The credit will run through 2032. If a homeowner times out their home improvement projects, they can claim up to $10,800 in tax credits over the nine-year period.

Residential Clean Energy Credit

Another massive tax implication of the Inflation Reduction Act is the extension and expansion of the residential clean energy credit. The credit was previously worth up to 26% of the cost to install qualifying clean energy systems that produce electricity, heat, water, or regulate the temperature in your home. However, the credit was set to drop to 23% in 2023 and then expire in 2024.

The Inflation Reduction Act has increased the credit amount to 30% from 2022 to 2032. The credit will then drop to 26% in 2023 and 22% in 2034. After 2034, the credit is set to expire.

High-Efficiency Electric Home Rebate

While not technically a tax credit, the Inflation Reduction Act introduces a rebate for low- and middle-income families who want to upgrade to energy-efficient appliances or make non-appliance upgrades. The maximum rebates include:

  • $840 for a stove, oven, or dryer
  • $1,750 for a water heater
  • $8,000 for a heat pump for space heating or cooling
  • $1,600 for insulation and ventilation
  • $2,500 for electric wiring
  • $4,000 for electric load service center upgrade

Only those families whose annual income fall between 80% and 150% of the area’s median income can qualify for the rebate. Additionally, families can only claim a maximum of $14,000 in total rebates.

$4.5 billion has been allocated to state and tribal governments to establish rebate programs. These funds will be made available through September 30, 2031.

How to Know if You Qualify for the New Energy Tax Credits

As with introducing any new tax credit, understanding if you qualify for the energy credits introduced in the inflation reduction act can be difficult. Before you go out and buy a new electric vehicle or start on a huge home improvement project, you should understand if you qualify for these credits.

E.file-tax.net has a team of tax professionals here to help you understand your individual tax situation. Contact us today to see if you qualify for these new exciting energy credits!

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