Summary: The Inflation Reduction Act of 2022 expanded the amount of energy-saving credits and the types of expenses that qualify for said credits. Click through to understand how you can become eligible for home energy tax credits when you opt for clean energy technologies for your home.
The Inflation Reduction Act offers the potential to save when you make energy-efficient upgrades to your home. Eligible improvements include features such as heat pumps, solar panels, and energy-efficient heating or cooling systems. In turn, with these credits, you could possibly save thousands of dollars.
Where does the Inflation Reduction Act stem from?
It’s part of the climate and tax laws designed to lower gas emissions that are actively heating up the planet and contributing to global warming. The law focuses on the major contributing factors of these gas emissions by prioritizing energy-efficient decisions. Plus, the goal is to lower how much it costs to make environmentally friendly decisions, as these tax credits offset some expenses.
When you make environmentally conscious renovations to your home in ways that save energy, you might qualify for a tax credit. Similarly, if you take measures to adjust your home so that the heating and cooling systems are more efficient, then that same tax credit could provide you with up to $3,200 within the same year of making said improvements.
What are qualified expenses with the Home Energy Tax Credits?
When you qualify for the Home Energy Tax Credit, you can expect a return of 30% of your expenses for the following:
• Exterior doors, windows and skylights.
• Insulation and air-sealing materials or systems.
• Central air conditioners.
• Natural gas, propane or oil water heaters.
• Natural gas, propane or oil furnaces, and hot water boilers.
• Heat pumps.
• Water heaters.
• Biomass stoves and boilers.
• Home energy audits of your primary residence.
What is the maximum credit that you can claim per year?
The maximum amount of money you can claim in the form of the Home Energy Tax Credit is equal to $1,200 for costs associated with energy improvements on your property. There are limitations when it comes to doors, as each door amounts to $250 per door, up to $500 total. Windows are equal to $600, while home energy audits equate to $150.
Furthermore, you may receive $2,000 per year in exchange for the purchase of qualified heat pumps, biomass stoves or biomass boilers. The credit applies to existing homes, additions, renovations and newly constructed homes. It is nonrefundable, meaning it cannot exceed the taxes owed.
Excess credit cannot be carried forward either. Energy improvements to your primary home may qualify for an annual tax credit, and you might also be eligible for the credit on improvements made to a second home as long as the home is not rented out to tenants.
The credit can cover 30% of qualifying purchases, including permits and inspections. Also, note that the credit may gradually decrease to 26% in 2032 and 22% in 2034.
From there, the credit is set to phase out in 2035. Remember that the credit is equivalent to 30% of the costs for new clean energy features that are installed in U.S. homes between 2022 and 2033.
What counts as qualified expenses in terms of the Home Energy Tax Credits?
Here are expenses that qualify for the tax credits:
• Solar electric panels.
• Solar water heaters.
• Wind turbines.
• Geothermal heat pumps.
• Fuel cells.
• Battery storage technology.
What standards must energy equipment meet in order to qualify?
Solar water heaters need a Solar Rating Certification Corp. certification. If not that, then an endorsement from a comparable entity in the applicable state works as well. A geothermal heat pump is required to meet Energy Star requirements in effect when you purchase it. Battery storage technology requires a capacity of no less than three kilowatt hours.
Ultimately, what is the goal of the Inflation Reduction Act?
The Inflation Reduction Act is designed to combat climate change by extending expired and reduced tax provisions alike. These extensions are intended to offer greater financial benefits to those who actively contribute to environmental conservation efforts.
That’s because energy tax credits directly reduce the costs of being environmentally friendly, which incentivizes people to participate in the program for the sake of the savings. By investing in these priorities, individuals can save money while reducing their environmental impact.
To claim the credit, taxpayers should fill out Form 5695 Residential Energy Credits. The best time to do this is when you are filling out your tax return. Last but not least, don’t forget to claim the tax credit for the tax year when the efficient properties were installed.