Individual Energy Tax Credits to Take Advantage of Now

The Inflation Reduction Act (IRA) of 2022 is helping combat climate change through the enactment of many tax credits that aim to accelerate the widespread use of clean energy.  These tax provisions don’t just help corporations; many are designed for individual taxpayers looking to invest in energy-efficient improvements.  Some provisions involve extending existing energy-related credits, while others are new and encourage individuals to invest in energy efficiency in their homes and vehicles.  Many of these credits became available in 2023, so now is a great time to take a closer look at them.

Residential Energy Credits

The IRA expanded upon the previous energy-efficient home improvement credit.  Taxpayers can claim a tax credit of up to 30% of expenses incurred for new qualified energy-efficient improvements made during the year to their primary residence; residential energy property expenditures made to their residence (it does not have to be their primary residence); and/or a home energy audit for the primary residence.  Generally, the maximum credit allowed is $1,200.  Each category has its own allowance limit:

• Qualified energy-efficient improvements are those components with a lifespan of at least five years and include such things as exterior windows (up to $600) and doors ($250 per door, up to $500) and insulation
• Residential energy property expenditures including heating and cooling equipment, with a max credit of $600
• Home energy audits have a max credit of $150

This credit is not refundable or able to be carried forward, but it no longer has lifetime limitations due to changes made under the IRA.  The credit is currently set to expire for property placed into service after December 31, 2032 and is only permitted for improvements made to existing home, not new ones.

In regards to the residential clean-energy credit, qualifying taxpayers can claim up to a 30% credit for expenses made in installing certain alternative energy upgrades, such as solar panels, solar water heaters, and wind turbines.  This is available for both existing home and new builds.  The credit begins a phase-out process in 2033 before being eliminated entirely for property placed into service after December 31, 2034.

Vehicle Credits

The IRA amended tax credits related to the purchase of new clean vehicles.

Taxpayers are eligible for a clean vehicle tax credit up to $7,500 based on the following criteria:

• The vehicle must be new and for the taxpayer’s own use or lease
• It cannot be predominantly used outside the United States
• Have a certain kind of electric motor, a gross weight rating under 14,000 pounds, be made by a qualified manufacturer, and undergo final assembly somewhere in North America
• At the time of sale, the seller must provide the vehicle qualifications to the taxpayer and the IRS
• The MSRP of the vehicle cannot exceed:
  • $80,000 for SUVs, vans, and pickup trucks
  • $55,000 for other vehicles
• The taxpayer’s modified adjusted gross income cannot exceed the following limits:
  • $300,000 for married couples filing jointly or surviving spouse
  • $225,000 for head of households
  • $150,000 for all remaining filers

The IRA also added a credit for the purchase of previously owned clean vehicles.  Taxpayers are eligible for a credit of $4,000 or 30% of sales price for pre-owned clean vehicles placed into service between 2023 and 2032.  The following criteria are required to claim the credit:

• Vehicle must be a model at least 2 years earlier than the calendar year of the purchase.
• Vehicle must have a certain kind of electric motor, a gross weight rating under 14,000 pounds, and be made by a qualified manufacturer
• Vehicle must be sold by a dealer for a price not exceeding $25,000
• The seller must provide vehicle qualifications the vehicle qualifications to the taxpayer and the IRS
• The taxpayer:
  • Cannot be claimed as a dependent by another taxpayer
  • Is buying the previously owned clean vehicle for their own use
  • Has not been allowed the same credit during the three-year period ending on the sale date
  • Is not the original owner of the vehicle
  • Meets the following income requirements:
    • $150,000 for married couples filing jointly or surviving spouse
    • $112,500 for head of households
    • $75,000 for all remaining filers

For 2024, taxpayers have the option of transferring the credits for purchase of a new or used clean vehicle to the registered dealer, effectively taking the credit at the time of purchase instead of waiting to file their taxes.

Contact Us

If you have questions about the information outlined above or need assistance with a tax or accounting issue, Klatzkin can help. For additional information call 609-890-9189 or click here to contact us. We look forward to speaking with you soon.