Expanded Tax Credits Help Offset the Costs of Energy-Efficient Home Improvements by Rachel Kenney Rego, CPA
Upgrading your home’s energy efficiency can not only help the environment and reduce your electric bills, but it can also provide you with valuable tax credits to cover a portion of qualifying improvement expenses beginning in 2023.
Energy Efficient Home Improvement Credits
Under the Inflation Reduction Act signed into law in 2022, homeowners may earn up to $3,200 in Energy Efficient Home Improvement Credits each year through 2032 for energy-efficient improvements they make to an existing primary residence. The credit is equal to 30 percent of the total cost homeowners incur each year when they install a broad range of upgrades, including:
- solar panels for electricity;
- home backup power battery storage;
- electric or natural gas heat pumps, water heaters and central air conditioners;
- natural gas or propane water heaters, furnaces and boilers;
- solar water heating products certified by the Solar Rating Certification Corporation or comparable entity;
- oil furnaces or hot water boilers that meet or exceed 2021 Energy Star efficiency criteria and are rated by the manufacturer for use with fuel blends at least 20% of the volume of which consists of an eligible fuel;
- panelboards, sub-panelboards, branch circuits, or feeders that are installed according to National Electrical Code and have a load capacity of 200 amps or more (maximum credit $600);
- Insulation materials and systems that meet International Energy Conservation Code standards; and
- exterior windows and doors
It is important to note that there are limits to the maximum credit homeowners may claim for certain upgrades they make each year. For example, the credit for installing energy-efficient windows is restricted to $600 or less, whereas the credit for an electric or natural gas heat pump maxes out at $2,000 per year. In addition, the credit is non-refundable, meaning that homeowners may use it to decrease or eliminate their tax liabilities.
Residential Clean Energy Credit
Taxpayers may also claim a Residential Clean Energy Credit equal to 30 percent of new, qualified clean-energy property improvement they make to an existing or new home, including a second home they do not rent to others. Qualifying costs include those for generating solar, wind and geothermal power, burning plant-derived biomass fuel to heat a dwelling or installing fuel cell property that uses electrochemical means to convert fuel into electricity. When calculating the amount of the credit, you may need to subtract subsidies, rebates or other financial incentives from manufacturers or public utilities since they are considered a purchase-price adjustment.
About the Author: Rachel Kenney Rego, CPA, is a senior manager of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where she works with entrepreneurs and high-net-worth families to develop and implement strategies for business, individual and estate tax efficiency. She can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or info@bpbcpa.com.
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