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Homeowners and car buyers can expect big changes to the energy-related tax credits that are part of the recently approved deal. Inflation Reduction Act of 2022.
Tax credits for homeowners
The Inflation Reduction Act revived and modified two energy-related credits for homeowners:
Non-commercial energy property credit revived for 2022
Homeowners can claim the Noncommercial Energy Property Credit for energy efficiency improvements and energy expenses on properties they make during 2022. This credit had largely expired at the end of 2021, but was reactivated by the Inflation Reduction Act for 2022.
- Energy efficiency improvements are components of the building envelope, such as insulating materials, certain metal roofs, and exterior windows and doors.
- Qualified energy property includes heat pumps, air conditioners, heaters and biomass stoves.
A homeowner’s total lifetime credit is limited to $500. The annual credit for certain types of property is also limited.
The Energy Efficient Home Improvement Credit replaces the Non-Commercial Energy Property Credit
Starting in 2023, the Non-Commercial Energy Property Credit is restructured as the Energy Efficient Home Improvement Credit. This credit is generally equal to 30% of:
- A homeowner’s qualified energy efficiency improvement costs,
- Residential energy property expenses for qualified energy property, even if the taxpayer does not own the home, and
- Costs of an owner’s home energy audit.
The credit no longer has a lifetime limit, but limits apply to the annual credit and to credits for certain types of goods.
Qualified expenses for the new Energy Efficient Home Improvement Credit and the old Noncommercial Energy Property Credit are similar, but not identical.
The Residential Clean Energy Credit replaces the TPSO reporting threshold for the Residential Energy Efficient Property Credit
Less extensive changes are applied to existing ones. Credit for energy efficient residential propertywhich is now called “Residential Clean Energy Credit.The 2022 credit applies to spending on solar energy, fuel cells, wind energy and geothermal heat pumps. After 2022, the credit rate increases and credit is extended to battery storage technology.
Tax credits for car buyers
The Inflation Reduction Act makes a big immediate change to the existing credit for new electric vehicles. For 2023, the credit is also renamed and restructured, and a new credit applies to used electric vehicles.
Plug-in electric vehicles must be assembled in North America
Existence Credit for plug-in electric vehicles No longer applies to a vehicle purchased after August 16, 2022, unless:
- final assembly of the vehicle occurred in North America, or
- Before August 16, 2022, the taxpayer entered into a binding written contract to purchase the vehicle.
The Department of Energy has a list of model year 2022 and early model year 2023 electric vehicles that can meet this final assembly requirement. However, since some models are built in multiple locations, taxpayers must use the VIN Decoder National Highway Traffic Safety Administration website to determine the actual manufacturing location of a particular vehicle.
Clean Vehicle Credits Replace Plug-in Electric Vehicle Credit
- The Clean New Vehicle credit does not apply to higher-income taxpayers.
- The New Clean Vehicle credit does not apply to higher priced vehicles.
- To get the maximum clean new vehicle credit, the vehicle must meet domestic manufacturing and content requirements.
On the other hand, a new feature of the Clean Vehicle Credit extends its reach to car buyers who don’t want to wait for a tax credit to recoup the costs of their vehicle. Starting in 2024, the buyer of a car will be able to transfer the credit to the seller. This allows the dealer to use the credit as a price reduction, down payment, or cash refund.
Clean Used Vehicle Credit Available for the First Time
In addition to the restructured New Clean Vehicle Credit, there is a new credit of up to $4,000 available for people who purchase used clean vehicles after 2022. Both clean (electric) vehicles and fuel cell vehicles may qualify for the New Clean Vehicle Credit. Clean previously owned vehicles.
As with the Clean New Vehicle Credit, higher-income buyers and higher-priced vehicles are not eligible for the credit; and, after 2023, the buyer will be able to transfer the credit to the seller.
Credit for refueling vehicles with expanded and modified alternative fuel
Finally, the existing Property Credit for Refueling Alternative Fuel Vehicleswhich had expired at the end of 2021 is revived for 2022. However, after 2022, the credit applies only to properties in low-income census tracts and non-urban areas. Credit rates and limits for depreciable (commercial) properties are also modified.