The Inflation Reduction Act was signed by Biden this month. We wanted to give you an overview of the portions of the bill that may affect you. Much is being made of the bill's $80 billion in funding for the IRS and who will be getting audited in the future. We're just excited that they might start answering their phone again.
No one knows if this bill will actually curb inflation, but it does contain credits/rebates to reduce costs for energy upgrades and other green initiatives (electric cars, solar, etc..). Read below for details that may help you in future home improvements and/or electric car purchases.
If you still have questions as you plan for big life, home, business, car or other tax changes, please feel free to set up a consult with your Tax Preperar at Fox Tax*.
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*Please Note: Standard consulting rates of $80/hour will apply to scheduled consults.
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Online Savings Calculator
I found this website that tries to summarize what programs, credits and rebates are available based on where you live, household income, etc..
Check it out here and then read below for details on the ones you're eligible for!
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Energy Efficient Home Improvement Credits
The new law expands the energy efficient home improvement credits that expired at the end of 2021. For 2022, the rules stay exactly the same as they were in 2021: a 10% credit with a lifetime limit of $500.
Starting in 2023, the credit will be equal to 30% of the costs for all eligible home improvements made during the year. It will also be expanded to cover the cost of certain biomass stoves and boilers, electric panels and related equipment, and home energy audits. In addition, the $500 lifetime limit will be replaced by a $1,200 annual limit. So, if you spread out your qualifying home projects, you can claim the maximum credit each year. The annual limits for specific types of qualifying improvements will also be modified – and for the better. Beginning in 2023, they will be:
- $150 for home energy audits;
- $250 for an exterior door ($500 total for all exterior doors);
- $600 for exterior windows and skylights; central air conditioners; electric panels and certain related equipment; natural gas, propane, or oil water heaters; natural gas, propane, or oil furnaces or hot water boilers; and
- $2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and boilers (for this one category, the $1,200 annual limit may be exceeded).
These expanded 30% credits are available starting in 2023 through 2032, so keep the receipts and documentation for any energy efficient upgrades that you do!
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Alternative Energy Credits (Solar, Wind, Etc)
Solar credits had begun to phase out (credits had been 26% and dropping to 22%) but the new rule reinstates the full 30% credit for purchase of residential solar from January 1, 2022 through the end of 2032. So if you were to spend $20,000 on solar installation, you'd get a $6000 discount on your tax return at the end of the year. There are also expanded credits for battery storage technology as well.
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Electric Vehicle Credits
Are electric cars cheaper now? Maybe. But probably not.
Basically, it got more complex and in the short term, it's probably more difficult to qualify; less cars/people are eligible, but the hope is that it will spur US manufacturing of cars AND battery technology, so it's good that they made this credit good through 2032!
The new car credit stays at $7500, but comes with new requirements that it be assembled in the US and starting in 2023, the battery sourcing has requirements that may disqualify most cars from eligibility (China makes more than 70% of the batteries currently used).
Here's a list of cars that are eligible in 2022. The list for 2023 still doesn't exist. For 2022, the 200,000 car limit also still exists, so Tesla and GM have US made cars, but none are eligible until 2023 (but only if they can prove where the batteries came from).
There's also a new potential $4000 credit for buying a used electric vehicle (which must be at least 2 years old). But for now, again there are very few US assembled electric cars that are more than 2 years old.
There are also new income limits for 2023, so the credits are only available to single people making less than $150,000 and married couples making up to $300,000 after this year.
Watch for more IRS guidance in the future here. Good news: credit should be available upfront starting next year, so dealerships will (hopefully) be able to let you know if you qualify and apply it to the purchase price.
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Electrification Rebates
The Inflation Reduction Act also includes $4.5 billion over 10 years for state and tribal programs that are intended to deeply discount or fully fund electrification and efficiency projects or electrical appliances for low- and moderate-income households. The qualifying households are defined in the law as individuals or families whose annual incomes are less than 80 percent of the area median or not greater than 150 percent of the median.
The lowest-income households are eligible for point-of-sale rebates covering the full cost of certain electrical appliances or efficiency projects. Moderate-income individuals and families can get half off. The cumulative rebates available to each household total $14,000.
The law sets rebate caps for selected electric product classes. The Online Calculator here at "Rewiring of America" lists out the different types of rebates and caps, so if you're thinking of doing any electrical or appliance upgrades, take a look if you'll qualify (starting in 2023).
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As you can tell from above, it's very early to know all the details of each of these new programs, but it's great to know what's coming as you plan home projects or think about a new vehicle.
If you want to do any year end planning regarding this or any other changes upcoming in your life, please let us know! Click below to schedule online.*
Thanks!
Mark, Alyssa and the Fox Tax Team
*Standard consulting rates of $80/hour will apply.
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