You might be aware that the Inflation Reduction Act (IRA) recently became law. It contains, extends, and alters several climates and energy-related tax credits that may interest individuals. At the same time, experts are divided on whether it will lower inflation shortly.
Get the help of a certified Accounting Firm in Herndon, VA, if you need assistance claiming these new and revised tax credits.
Investing in non-commercial energy
Before the IRA’s passage, certain non-business energy property expenses qualified for a personal tax credit. Only equipment installed before January 1, 2022, was eligible for the credit. The credit is currently available for new energy-efficient construction before January 1, 2033.
Under the revised law, the credit is now worth 30% of the following for each tax year:
- The amount you spent or incurred for eligible energy efficiency upgrades that were installed throughout the year, and
- That year’s total amount spent on or incurred for home energy properties.
The credit can be raised to $150 if money is spent on a home energy audit.
The IRA also removes the lifetime credit cap, which now caps the credit at $1,200 per taxpayer every year. There are yearly caps of $250 for any exterior door and $600 for credits related to windows, skylights, and residential energy property expenditures ($600 for all exterior doors). There is a $2,000 annual cap on heat pumps, gas furnaces, and biomass stoves/boilers.
Homeowners can receive credit for clean energy.
You were entitled to a personal tax credit before the Residential Energy Improvement Act (IRA) was passed for solar electric, hot water, fuel cells, small wind power, geothermal heat pumps, and biomass fuel property installed in homes before 2024. This credit was known as the Residential Energy Efficient Property (REEP) Credit.
The credit is now available for property installed before 2035, thanks to the new law. Additionally, it opens up the credit for legitimate costs related to battery storage technology.
Credit for New Clean Vehicles
A credit could be claimed for any new, certified plug-in electric drive motor vehicle serviced during the tax year before the law’s adoption.
The law removes the restriction on the number of vehicles that can qualify for the benefit and renames it the Clean Vehicle Credit. Additionally, the vehicle’s final assembly must now be in North America.
Income restrictions will be in place starting in 2023.