By George Moffat
Everyone should closely check out the roughly $50 billion in clean-energy tax credits and rebates for homeowners that are part of the Inflation Reduction Act (IRA) that Congress passed last year.
Over the next decade, robust subsidies will be available for new and used electric vehicle purchases, home-energy efficiency audits and upgrades, heat-and-air conditioning pumps and other appliances, and more ome of the federal funding is already available via tax credits, and more in the form of rebates will become available later this year or next (see endnote), as individual states begin to administer these programs.
Many of the tax credits extend existing programs for energy efficiency.
Tax Credits vs Rebates
Tax credits directly reduce the federal income taxes you must pay. If you owe the Internal Revenue Service $2,000 in income tax, a $1,000 tax credit would cut your tax in half.
In some instances, consumers may be eligible for the full tax credit amount regardless of tax liability.
Rebates are unrelated to your taxes. Instead, they are refunds based on your costs for approved energy efficiency improvements. Under terms of the IRA, if you have a low income or live in designated low- and mid-income areas, your rebates may be higher.
IRA Homeowner Benefits
Heat pumps and Electric Appliances
A $2,000 maximum yearly tax credit is available for the purchase and installation of heat pumps and heat pump water heaters. An additional $1,200 in tax credits is available for other energy-saving improvements and appliances.
The federal government wants people to install highly efficient major appliances, so credits and rebates are provided for water heaters, air conditioners and heat pump heaters, and stoves, etc. Consumers can receive tax credits if they convert from natural gas or propane to electric. Buying new electric appliances, including cooktops, induction stoves, and wall ovens and garner $840 in savings. The catch is the federal government wants you to install highly energy efficient appliances. Be sure to investigate carefully before making a purchase.
Homeowners may also be eligible for a rebate of up to $4,000 to upgrade an electrical panel for electric or induction ranges, for electric heat pumps or electric-heat-pump clothes dryers; and $2,500 for electrical wiring work.
Electric vehicles
President Biden has a goal for half of all car sales to be electric by 2030. The IRA continues an existing $7,500 tax credit for new electric and hybrid plug-in passenger vehicles and a $4,000 credit for used vehicle purchases. Vehicles must be assembled in North America and meet other restrictions on components and materials sourcing.
Income limits apply: $150,000 for individuals and $225,000 for household leads. The income ceiling for joint filers is $300,000.
Tax credits apply only to cars with prices $55,000 or below; for trucks, vans, and SUVs, the limit is $80,000.
Used vehicles must be at least 2 years old and may cost up to $25,000.
The income limits to qualify for a used EV purchase are: $75,000 if single; $112,000, head of household; and $150,000, joint filers.
A restored and extended credit of up to $1,000 is available for charging equipment.
Solar panels
Up through 2032, the federal government will offer tax credits for up to 30% of the cost of solar panel installation, home wind turbines, geothermal heat pumps, and batteries for energy storage. The cost of labor, permits, and inspection is included.
Make renovations that reduce energy use and you could save money based on the measured reduction in energy used and your household income. Low-income households are eligible for rebates up to 80% of the cost of the work, which would involve insulating, replacing doors and windows, and upgrading ventilation.
In some cases, third-party verification will be required to ensure energy savings meet guidelines for rebates.
- Windows, $600; doors, $500 (tax credit)
- Up to $150 for a home energy audit (tax credit)
Landscaping
Landscaping expenses aren’t covered, but the IRA does include electric vehicle tax credits for the purchase of equipment such as lawn mowers. The credits are available for businesses only, such as landscapers, and allow up to $7,500 per piece of equipment.
How to Obtain Tax Credits and Rebates
The IRS offers different ways of receiving tax credits. In the case of electric vehicle credits, owners must file IRS Form 8936 with their tax return. Consumers should research carefully and verify that credits and rebates apply before making purchases and hiring contractors.
In July, the US Dept. of Energy (DOE) issued guidelines for the distribution of rebate money. Individual states have until August 2024 to submit their rebate administration plans to the
DOE for approval, so it may be a while before this money becomes available, and funding may not be consistent from state to state.