Thanks to the Biden Administration’s Inflation Reduction Act, billions of dollars in tax credits will be coming to Americans who prioritize energy efficiency next year and for many years to come. So if you’re looking to install solar panels, heat pumps, or swap out your gas stove for an electric one in your home, or maybe buy a new electric vehicle, it’s likely there’s a tax credit or rebate in your future — if you time it right.
The deadlines for the various tax credits are all over the place. Some, like solar panel installations, are retroactive to 2022; others, like electric vehicle tax credits, are only available in 2023 and onward. Here’s how to make heads and tails of it.
What Inflation Reduction Act Tax Credits Are Available?
First of all, if you make more than $150,000 as a single filer, $225,000 as a head of household, or $300,000 as a married couple filing jointly, you don’t qualify for these tax credits or rebates. Sorry!
For the rest of us, there are two credits available for homeowners: the residential clean energy credit, which is an expansion of an already existing tax credit that covers solar panels, wind turbines, and more, and the nonbusiness energy property credit, which covers the installation of energy-efficient skylights and upgraded exterior doors and windows.
There are also going to be rebates for some appliances such as electric kitchen appliances, including “ranges, cooktops, and wall ovens,” per Consumer Reports. The details on those rebates have not yet been fully worked out — but more on that later.
In terms of tax credits, per CNBC, that means:
- Heat pumps, heat pump water heaters, biomass stoves, and other efficient energy home comfort systems all qualify for credits of up to $2,000 or 30% of the cost of installation under the “nonbusiness energy property credit” in a year.
- Credits for adding energy-efficient skylights and upgrading exterior doors and windows are also included up to 30% of the cost of installation with a $1,200 cap annually, and can be used year after year for ongoing improvements under the “nonbusiness energy property credit.” Certain caps apply to certain items; doors are capped at $500, $600 for windows and skylights.
- If you’re planning to add solar panels, wind turbines, or geothermal units, you can also claim a credit of up to 30% of the cost of those upgrades under the “residential clean energy credit.”
There will be, eventually, rebates on new electric appliances and extra money to “help cover the cost of converting” from a gas to electric appliance. Rebates, which are up-front savings rather than tax credits given at tax time, will also be available for other home improvements like heat pump water heaters and for space heating, electric load service center upgrades, insulation upgrades, and electric wiring upgrades. These could amount to up to $14,000 in savings for consumers. However, states are still setting the framework for who will qualify for the rebates, what rebate programs (there are two) go to who, and if consumers can get both rebate programs or rebate and tax credit programs. Details have not yet been solidified, though they are expected to last until 2031, so check back here for more information later.
For more information on rebates and tax credits, check out CNBC’s reporting here.
When Are Inflation Reduction Act Tax Credits Available?
Each category of home improvement has a different deadline, and some are available retroactively.
- Solar panel installation, for example, is covered under the enhanced residential clean energy credit and is retroactive to any solar panels installed after Jan. 1, 2022. Any qualifying installation in 2022 through the end of 2032 qualifies for the 30% credit.
That’s great, but:
- The nonbusiness energy property credit is not available for projects completed in 2022. Beginning Jan. 1, 2023, and going through the end of 2033, home upgrades will qualify for this credit. So if you’re looking to take advantage of the nonbusiness credit, wait until the beginning of 2023.
What Electric Vehicle Tax Credits Are Available?
Credits for new and used electric vehicles (EVs) are available as part of the IRA’s push toward clean energy.
Credits of up to $4,000 or 30% of the cost of an EV are available for used passenger EVs while new EVs qualify for up to $7,500. This credit lasts until 2032, and there will be no caps on how many EVs from a manufacturer can be sold with the tax credit, ensuring that vehicle manufacturers who previously met that sales cap can now qualify for the tax credit once again.
These are the broad rules determining who is eligible for credits and what specific vehicles are covered:
- Starting in 2023, the EV must be assembled in North America, the majority of battery components must come from North America, and a “certain percentage of critical minerals” must come from North America too, per Electrek.
- Electric vehicles purchased in 2022 (after August 2022) must have had their final assembly performed in the U.S. to qualify for the credit and will bypass the electric battery component manufacturing rule set to phase in for 2023
- You have to make $150,000 or less as a single filer or $300,000 or less as a joint filer to qualify.
- Some cars will be too expensive to be covered by the credit. The limit will be $55,000 for sedans and $80,000 for SUVs and trucks.
In August of 2022, reporting suggested that very few, if any, EVs currently on the market qualify for the 2023 Electric Vehicle Tax Credit because most do not have their final assembly in the United States or the critical amount of battery components sourced from the U.S.
For a full list of vehicles that qualify through the end of 2022, click here. In terms of the full list of rules for what vehicles qualify for the tax credit for used and new EVs, and for information on vehicles that will qualify in 2023 for the tax credit, Electrek has reported on the issue extensively.
When Are EV Tax Credits Available?
For purchases of new and used EVs in 2022 and 2023, credits are available if the above requirements are met. However, consumers will have to wait until they file taxes to claim their credits. Some exceptions apply for people who bought their electric vehicles before the IRA rules went into effect in mid-August of 2022.
The credits are not refundable, so if your tax burden is less than the amount of the $7,500 credit, you will only receive an amount equal to your tax liability. So, for example, if your tax liability is $4,000, you will receive $4,000; the other $3,500 will not go toward a tax refund.
Beginning in 2024, EV credit rules will change again, allowing consumers to transfer their credit to dealers. This will allow dealers to provide a point-of-sale discount for the amount of the tax credit.
Regardless of the red tape involved, consumers stand to recoup a bundle of cash through these credits. The credits will also defray some of the costs involved in upgrading homes and vehicles while decreasing consumers’ carbon footprint and helping make the world a cleaner place for us all.