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Quick Links to Contents

• Energy Credit Overview
• Energy Efficient Home Improvement Credit
• The Residential Clean Energy Credit
• 2022’s Electric Vehicle Clean Vehicle Credit
• 2023’s Electric Vehicle Clean Vehicle Credit
• NEW – Credit for Used Electric Vehicles
• More EV Credit Details & Extras
• Credit for Electric Vehicle Charging Stations
• High-Efficiency Electric Home Rebates
• Thank You for Choosing Us!

Energy Credit Overview

The Inflation Reduction Act (signed into law on August 16th, 2022) had little to do with reducing inflation, but it did make some noteworthy tax changes.  We discussed changes to child-related credits and inflation adjustments in my last newsletter.   Today, I’ll focus on the type of tax planning I like most – saving money by purchasing items you’d likely buy anyway! 

To this end, the Inflation Reduction Act includes financial incentives for replacing doors, windows, and heat pumps that have gone caput, installing solar panels, and replacing an existing vehicle with an electric one.  It also created a $4.275 billion efficient home improvement rebate system.  The rebate will not impact your tax return but is substantial enough that I wanted to make you aware of it.

Energy Efficient Home Improvement Credit

Finally!  The most exciting aspect of this credit (for tax pros) is getting rid of the horrid name, The Nonbusiness Energy Credit.  Now, it finally sounds like what it is - a home improvement credit. The Energy Efficient Home Improvement Credit has replaced and expanded the Nonbusiness Energy Credit and is available from 2022 until 2032.  Unfortunately, 2022’s a bit of a bummer because its predecessor’s rules still apply.  Here are some of the highlights to keep in mind for 2022 and 2023:

• For 2022, the rules for the Nonbusiness Energy Credit apply.  The credit is worth 10% of the cost of qualifying energy-efficient insulation, windows, doors, roofing, and similar energy-saving improvements in your home.  You can also (in theory) claim 100% of the costs of installing energy-efficient water heaters, heat pumps, central air conditioning systems, furnaces, hot water boilers, and air-circulating fans.   BUT – and here’s the rub – it has a $500 LIFETIME limit ($200 for windows).  What’s worse?  The credit has been around for roughly 15 years, meaning few can remember whether they have already met the limit! 

The following bullets discuss 2023 and later.

• In 2023, the credit jumps to 30% for eligible home improvements.  Plus, the $500 lifetime limit gets eliminated and replaced with a $1,200 ANNUAL limit.  The annual limit creates an excellent opportunity to budget projects each year to receive the maximum amount annually.
• Also, beginning in 2023, the credit includes $150 for home energy audits.  What exactly is a home energy audit that qualifies for the credit?  I’m still researching that detail.
• Some credit amounts have maximum limits - for example, $250 for an exterior door and $500 total for all exterior doors.  There is a $600 annual limit on “single property items,” including exterior windows; skylights; central air conditioners; electric panels; natural gas, propane, and oil water heaters; natural gas, propane, and oil furnaces.   
• Additionally, some items can exceed the $1,200 annual credit limit.  Qualifying electric or natural gas heat pump water heaters (yes, there is such a thing), electric or natural gas heat pumps, and biomass stoves/boilers have a $2,000 cap.
• In 2025, property manufacturers will create unique, identifying numbers for qualifying purchases that taxpayers must report on their returns.
• Another bonus: The home no longer has to be your primary residence.  Second homes also qualify!

The Residential Clean Energy Credit

The Residential Clean Energy Credit replaces the Residential Energy Efficiency Property Credit (set to expire in 2024).  This credit applies to solar, wind, and geothermal units that produce electricity, heat water or control your home’s temperature.  Here are some of the items that will impact most returns.

• The credit is good for twelve years.  It does not expire until 2034.
• The credit equals 30% (up from 2022’s previous 26%) of qualifying property costs through 2031.  These costs include site prep and installation.  The credit also has no cap.
• Battery storage qualifies if it has a capacity of at least three-kilowatt hours starting in 2023.

2022’s Electric Vehicle Clean Vehicle Credit

For 2022, the electric vehicle credit remains essentially the same as in 2021, ranging from $2,500 to 7,500, depending on battery capacity.  But, the credit gets eliminated after the manufacturer sells 200,000 qualifying vehicles.  As a result, GM and Tesla no longer qualify for 2022.  Click here to view the Department of Energy’s list of 2022’s qualifying Vehicles.

NOTE: For electric vehicles purchased after the passage of the Inflation Reduction Act, August 16th, 2022, final vehicle assembly must take place in the US.  Therefore, some foreign models on the Department of Energy’s list may no longer qualify.  There is an exception for contracts executed before the act’s passage but delivered after.

2023’s Electric Vehicle Clean Vehicle Credit  

Note – we are awaiting guidance on many of these details, so please consider this information as tentative based on our current understanding.

In 2023, the maximum electric vehicle credit remains $7,500, and the manufacturer limit is gone.  There are, however, restrictions on vehicles and manufacturers that qualify. The maximum credit of $7,500 has two separate components.  Up to $3,750 is for vehicles that meet a critical mineral requirement (40% or more coming from the US or countries with whom the US has a free trade agreement).  Another $3,750 is available for vehicles with at least 50% battery components made and assembled in the US. Click to see Qualifying Vehicles at the Alternative Fuels Data Center.

Income Limits: Starting in 2023, only taxpayers with certain income levels qualify for the EV credit.  For married couples filing jointly, Modified Adjusted Gross Income must be less than $300,000.  For head-of-household filers, the cap is less than $225,000, and for single filers, it’s $150,000.

Price Limits: For credits claimed in 2023 and beyond, only vans, SUVs, or pickups with MSRPs if 80,000 or less qualify.  To qualify, other vehicles (cars) must have MSRPs of $55,000 or less.
 
CREDIT FOR PREVIOUSLY OWNED CLEAN VEHICLES

I typed it in caps because it’s pretty big news!  In 2023, certain used electric vehicles can qualify for a 30% credit of up to $4,000.  Sadly, as often happens when we first hear big news, the details can dull our excitement.  Case in point:

• The vehicle must be at least two years old,
• The sales price must be $25,000 or less,
• The seller must be an approved dealer – private sales do not qualify,
• The dealer must obtain the used vehicle from the original owner,
• The car’s gross vehicle weight must be less than 14,000 pounds,
• Your Modified Adjusted Gross Income Must be $150,000 or less if filing jointly, $75,000 if single, and $112,500 for heads of household, and
• More excitement-dulling details may follow.

Notable EV Extras  

EV Credits Transferable: For both EV credits (new and used), the legislation allows buyers to transfer the credits to the seller/dealer.  The transfer appears to create a rebate situation for the buyer but begs some head-scratchers - for instance, how will the dealer know the buyer’s income qualifies on their next tax return?  I’m sure a flowchart workaround will arrive at some point. Important –

EV Credits are “One & Done:”  If receiving a $7,500 credit for an electric vehicle is a significant part of your purchase decision, keep the following in mind.   The EV credits are nonrefundable, meaning they can only offset tax due on your tax return – if you do not owe tax, you will not receive the credit.  Also, if you don’t use the entire credit in the year of purchase, it’s gone forever.  There is no carryover of unused EV credits.

Remember to Check with your State: Incentives may not stop at the federal credit.  Some states also offer electric vehicle rebates and credits.  These states include California, Colorado, Connecticut, Delaware, Maine, Massachusetts, New York, Oklahoma, Oregon, Pennsylvania, Texas, and Vermont.  But, be sure to research state incentives, as the requirements vary greatly.

Electric Vehicle Charging Stations

The Inflation Reduction Act revived the Alternative Fuel Refueling Property Credit, which expired at the end of 2021.  It is now in effect until 2032 and worth 30% of qualifying refueling property (EV charging equipment) installed at the taxpayer’s home up to $1,000.  Also, starting in 2023, bi-directional chargers qualify. Commercial EV charging station installation credits are more generous than residential.  They equal 30% of equipment and installation costs of up to $100,000.  

High-Efficiency Electric Home Rebates

Although it’s not a tax credit, many low and middle-income households may benefit from a new program to assist in making energy-efficient home upgrades.  Families with incomes less than 150% of the median household income for their area can qualify.  NOTE – The rebate is a generous financial incentive based on median household income, not the poverty level, as with the health insurance credit.  For example, Berkeley County, WV, had a median household income of $60,613 in 2019, meaning families earning up to nearly $91,000 may qualify.  Click here to learn your county’s median income level. Participating states will administer the new rebate program, not (thank goodness) your tax return!  Rebates get reduced once income reaches 80% and continue to shrink until reaching zero at 150% of median income.  Details have yet to be fleshed out, but the maximum rebates are pretty impressive.  Here are the maximum rebate amounts:

• $840 for a stove, cooktop, range, oven, or heat pump clothes dryer;
• $1,750 for a heat pump hot water heater; 
• $8,000 for a heat pump for space heating or cooling.
• 1,600 for insulation, air sealing, and ventilation;
• $2,500 for electric wiring; and
• $4,000 for electric load service center upgrades.

THANK YOU!

Well, there you have it – an overview (and likely everything you ever wanted to know) of 2022 & 2023’s energy credits for individuals and families.  Thank you for choosing Brett (My Tax Guy) Hersh, EA, LLC, and RealEstate-TaxPro.com as your tax professionals and Overnight Accountant as your business & tax training partner. Remember, 1) We are here year-round to answer your tax questions and help you plan for the future, 2) To download your 2023 $50 Tax Prep Coupon, and 3) To grab your 2023 New $100 Client Coupon if you’re not a current client or know someone we can help!