Inflation Reduction Act - Clean Energy tax credit for home purchases

[YoungSisyphus]

[Title was "The new passed climate bill: optimizing home purchases for tax savings?" --admin LadyGeek]

I've seen some exciting headlines about the bill that passed centered around the $100B in taxpayer incentives for home upgrades. Has anyone seen more details around when you can start seeing these savings / are there income limits / when is best to time home upgrades?

I ask because I have an old house and have just been dying to upgrade windows, insulation, moving to tankless water heater (current one needs to be replaced for safety reasons anyways, so will pull that trigger shortly regardless of this), and had been considering solar. Would love to optimize my tax savings and may change how I prioritize savings over the next year if it can be taken advantage of soon.

[LadyGeek]

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Here's the official status: H.R.5376 - 117th Congress (2021-2022): Inflation Reduction Act of 2022 | Congress.gov | Library of Congress

When the bill is signed into law, please PM me or report the post to unlock the thread.

[LadyGeek]

The President has signed the bill into law. This thread is reopened to continue the discussion.

Here's the official content: H.R.5376 - 117th Congress (2021-2022): Inflation Reduction Act of 2022 | Congress.gov | Library of Congress

[RubyTuesday]

[Thread merged into here --admin LadyGeek]

Here’s a briefing of what’s in H.R. 5376 The Inflation Reduction Act
https://www.whitehouse.gov/briefing-roo ... ction-act/

[RubyTuesday]

We will be building a house in next 12-18 months and I’m looking into what the law actually does with respect to tax credits for things like solar energy installs, geothermal, heat pump water heaters, etc and also the changes to the EV credit eligibility.

Any credible sources posted would be appreciated.

[RubyTuesday]

Here’s another summary:
https://www.congress.gov/bill/117th-con ... -bill/5376

[galawdawg]

I've seen some exciting headlines about the bill that passed centered around the $100B in taxpayer incentives for home upgrades. Has anyone seen more details around when you can start seeing these savings / are there income limits / when is best to time home upgrades?

I ask because I have an old house and have just been dying to upgrade windows, insulation, moving to tankless water heater (current one needs to be replaced for safety reasons anyways, so will pull that trigger shortly regardless of this), and had been considering solar. Would love to optimize my tax savings and may change how I prioritize savings over the next year if it can be taken advantage of soon.

Exciting headlines? Okay. I didn't find much "exciting" about it in the WSJ, but you may be reading a different newspaper.

Here is the text of the bill, perhaps you will ind what you are looking for there if you search for terms like "home improvement."

https://www.congress.gov/bill/117th-con ... /5376/text

Good luck with your projects!

[RubyTuesday]

This Kiplinger article goes into detail on many of the residential energy efficiency / clean energy incentives.

https://www.kiplinger.com/taxes/605069/ ... provements

[ray.james]

They are changing the lifetime credit to annual credit and expanding the amount. You can find some details here:

https://www.kiplinger.com/taxes/605069/ ... provements

[calwatch]

Here is the Congressional Research Service report on all of the changes made in tax law.
https://crsreports.congress.gov/product/pdf/R/R47202

[RubyTuesday]

Here is the Congressional Research Service report on all of the changes made in tax law.
https://crsreports.congress.gov/product/pdf/R/R47202

Thanks! This is a very nice report and easily understood.

[RubyTuesday]

This post in another thread links to good report summarizing changes:
viewtopic.php?p=6827402#p6827402

[RubyTuesday]

Here’s the relevant section of the CRS report on the Residential Clean Energy Credit

Current law provides a tax credit for the purchase of solar electric property, solar water heating property, fuel cells, geothermal heat pump property, small wind energy property, and qualified biomass fuel property. The credit rate is 26% through 2022 (it was 30% through 2019), and is scheduled to be reduced to 22% in 2023 before expiring at the end of that year. This provision would extend the credit through December 31, 2034, restoring the 30% credit rate through 2032, and then reducing the credit rate to 26% in 2033 and 22% in 2034. Qualified battery storage technology would be added to the list of eligible property.
The credit would be renamed the residential clean energy credit.

Highlights are mine. 30% credits are back and now extend to battery as well.

[indexfundfan]

Is the new EV credit now refundable?

[LadyGeek]

I merged RubyTuesday's thread into the ongoing discussion.

(Thanks to the member who reported the post and provided a link to this thread.)

Is the new EV credit now refundable?

Let's keep this thread focused on home purchases. Please start a new thread for Electric Vehicle credits (or find an existing one).

[beardsicles]

Is the new EV credit now refundable?

Starting Jan 1. Even refundable at point of sale! But not many models will qualify.

[beardsicles]

As excited as I am about this bill, I expect the specific provisions really won’t impact many folks on this forum. Most of the electrification rebates are for folks at or below 150% AMI. And that’s annual income, not adjusted gross income. Some of the credits will defray costs a bit but the bill is really narrowly tailored to relatively low incomes.

[RubyTuesday]

As excited as I am about this bill, I expect the specific provisions really won’t impact many folks on this forum. Most of the electrification rebates are for folks at or below 150% AMI. And that’s annual income, not adjusted gross income. Some of the credits will defray costs a bit but the bill is really narrowly tailored to relatively low incomes.

The Residential Clean Energy Credits (e.g. 30% of cost of solar or geothermal) is not tied to income.

[beardsicles]

As excited as I am about this bill, I expect the specific provisions really won’t impact many folks on this forum. Most of the electrification rebates are for folks at or below 150% AMI. And that’s annual income, not adjusted gross income. Some of the credits will defray costs a bit but the bill is really narrowly tailored to relatively low incomes.

The Residential Clean Energy Credits (e.g. 30% of cost of solar or geothermal) is not tied to income.

Yeah, that’s true. But that’s a reauthorization (and %) improvement rather than something new.

[RubyTuesday]

As excited as I am about this bill, I expect the specific provisions really won’t impact many folks on this forum. Most of the electrification rebates are for folks at or below 150% AMI. And that’s annual income, not adjusted gross income. Some of the credits will defray costs a bit but the bill is really narrowly tailored to relatively low incomes.

The Residential Clean Energy Credits (e.g. 30% of cost of solar or geothermal) is not tied to income.

Yeah, that’s true. But that’s a reauthorization (and %) improvement rather than something new.

Adding battery storage to the property eligible for credit is new though.

[Flyer24]

Let’s keep the thread focused on home improvement tax credits.

[RubyTuesday]

Editing to clarify.

The law has credits related to residential home efficiency… some only available to existing homes (“home improvement” under the energy efficient home improvement credit program), and some available to existing and new homes (including credits under the Residential Clean Energy Credit program for solar, geothermal, battery, etc).

My thread which was merged into this thread was intending to discuss both.

Any posts I make referencing battery systems will not be EV related but home energy related.

[feehater]

For the rebates for middle-income people (not the tax credits), is there a calculator available yet that explains how the 150% of area median income is calculated? And is it a cliff right at 150%? AGI or what? The Kiplinger article just ends without explaining it in much detail.

[beardsicles]

For the rebates for middle-income people (not the tax credits), is there a calculator available yet that explains how the 150% of area median income is calculated? And is it a cliff right at 150%? AGI or what? The Kiplinger article just ends without explaining it in much detail.

It’s local, you should be able to look it up. Area median income is usually used to calculate benefits for social programs. You should be able to find 80% AMI easily and calculate from there. And yeah, it’s a cliff at 150%. As far as I know it’s annual income, not AGI.

[snackdog]

So the solar credit will be 30% (instead of 26% currently) for 2022 retroactive to Jan 1 and with no income limit, yes?

[teen persuasion]

Here’s the relevant section of the CRS report on the Residential Clean Energy Credit

Current law provides a tax credit for the purchase of solar electric property, solar water heating property, fuel cells, geothermal heat pump property, small wind energy property, and qualified biomass fuel property. The credit rate is 26% through 2022 (it was 30% through 2019), and is scheduled to be reduced to 22% in 2023 before expiring at the end of that year. This provision would extend the credit through December 31, 2034, restoring the 30% credit rate through 2032, and then reducing the credit rate to 26% in 2033 and 22% in 2034. Qualified battery storage technology would be added to the list of eligible property.
The credit would be renamed the residential clean energy credit.

Highlights are mine. 30% credits are back and now extend to battery as well.

Are these refundable tax credits? Not very useful to us if they are not - we'd like to do geothermal, and EV, before sizing a solar system.

[RetiredCSProf]

I plan to replace three windows in my house (in 2022 or 2023) with more energy-efficient windows. I had already used up the previous credits allowed when I replaced other windows in 2013. If I understand the climate bill correctly, I can expect to receive up to a maximum of $600 (or 30% of the cost of the window upgrade, whichever is less) in tax credits, regardless of my taxable income. Is the tax credit allowed for 2022 or should I plan to wait until 2023?

[ChiKid24]

Hope my accountant gets versed in this law. We're closing on a house next month that has leased solar. We have an option to buy it from Tesla. Not sure if that would qualify as a purchase and give me access to the credit. If so, it will definitely need to be part of my analysis.

[SDLinguist]

So the solar credit will be 30% (instead of 26% currently) for 2022 retroactive to Jan 1 and with no income limit, yes?

That is my understanding reading the changes. Sounds very nice, we bought and had our system installrd in February of 2022 so having the change be retroactive will be a nice chunk of change come April next year.

[uglymcmuffin]

Pardon my ignorance on the matter, but is this something I would be able to claim via turbo tax at the end of the year? Like if I did a remodel on my home or I am planning on doing a remodel does this appear as one of the questions “let’s try to save you money - did you make any energy saving improvements to your home this year?” Or should I hire a CPA?

Or is there some government website that I need to be registering my home improvements on to qualify for the credits? Like before you do your remodel, you should register here, apply for X permit with Y designation with Z proof of costs etc, and if it’s approved I get a check mailed to me.

So far in my life, my taxes have been very simple, and I have avoided intersections with the federal government.

[RubyTuesday]

Pardon my ignorance on the matter, but is this something I would be able to claim via turbo tax at the end of the year? Like if I did a remodel on my home or I am planning on doing a remodel does this appear as one of the questions “let’s try to save you money - did you make any energy saving improvements to your home this year?” Or should I hire a CPA?

Or is there some government website that I need to be registering my home improvements on to qualify for the credits? Like before you do your remodel, you should register here, apply for X permit with Y designation with Z proof of costs etc, and if it’s approved I get a check mailed to me.

So far in my life, my taxes have been very simple, and I have avoided intersections with the federal government.

I don’t use TurboTax, but I’m almost certain it will be supported. No govt registration required.

Check out IRS Form 5695.

[RubyTuesday]

Here’s the relevant section of the CRS report on the Residential Clean Energy Credit

Current law provides a tax credit for the purchase of solar electric property, solar water heating property, fuel cells, geothermal heat pump property, small wind energy property, and qualified biomass fuel property. The credit rate is 26% through 2022 (it was 30% through 2019), and is scheduled to be reduced to 22% in 2023 before expiring at the end of that year. This provision would extend the credit through December 31, 2034, restoring the 30% credit rate through 2032, and then reducing the credit rate to 26% in 2033 and 22% in 2034. Qualified battery storage technology would be added to the list of eligible property.
The credit would be renamed the residential clean energy credit.

Highlights are mine. 30% credits are back and now extend to battery as well.

Are these refundable tax credits? Not very useful to us if they are not - we'd like to do geothermal, and EV, before sizing a solar system.

Non-refundable (1040 Schedule 3 line 5), but you can carry forward.

[mervinj7]

Hope my accountant gets versed in this law. We're closing on a house next month that has leased solar. We have an option to buy it from Tesla. Not sure if that would qualify as a purchase and give me access to the credit. If so, it will definitely need to be part of my analysis.

That would be good to know for many people. Worst case, can the lease be cancelled and you just install your own setup for the full tax break?

[Paul78]

On a personal level it means I am going for new roof and solar by 2032. My roof probably has 5-10 years left so the timing lines up. Also hopefully batteries gets better/cheaper as that is really the only way solar truly makes sense (it is can cover 100% of energy needs not just needs in day time). The break even point is really pretty long without reasonable priced batteries.

[Kaizen Soze]

I'm installing new insulation, windows, and doors this year ($48,000). If I'm reading the bill correctly, I can receive the following:

Tax Credits:
Windows ($600)
Exterior Doors ($500)
Insulation ($0 because I exceed 150% median annual income)
No carry-over.

The window company is also installing one sliding door. If the exterior doors don't get installed until 2023 (right now scheduled for end of November), I could receive $500 this year for the sliding door and $500 next year for the other exterior doors.

Is that correct?

[ryman554]

I thought I also saw some language (on the up to $1200 credits) about it being per-taxpayer. And then $2000 limit for HVAC, but no mention on per-taxpayer there.

So, is the credit limit for MFJ for stuff like windows/doors/etc $600 or $1200/item? With an annual combined limit of $1200 or $2400?
Does that change the answer for the HVAC limit?

[rkhusky]

Too bad - I just had a new AC installed this year (but I wouldn't have put it off until 2023 anyway). Not eligible under the old system because we got the rebate on our previous house 10 years ago.

[beardsicles]

I thought I also saw some language (on the up to $1200 credits) about it being per-taxpayer. And then $2000 limit for HVAC, but no mention on per-taxpayer there.

So, is the credit limit for MFJ for stuff like windows/doors/etc $600 or $1200/item? With an annual combined limit of $1200 or $2400?
Does that change the answer for the HVAC limit?

Yeah the per taxpayer thing is something I’ve been trying to get to the bottom of. It seems very strongly written to me but I am not an account or a lawyer.

[simplesimon]

So the solar credit will be 30% (instead of 26% currently) for 2022 retroactive to Jan 1 and with no income limit, yes?

That is my understanding reading the changes. Sounds very nice, we bought and had our system installrd in February of 2022 so having the change be retroactive will be a nice chunk of change come April next year.

Same, having my panels installed next week after signing a contract in March. I'll take it!

The 30% credit is supposed to last through 2032.

[Johnny Thinwallet]

I plan to replace three windows in my house (in 2022 or 2023) with more energy-efficient windows. I had already used up the previous credits allowed when I replaced other windows in 2013. If I understand the climate bill correctly, I can expect to receive up to a maximum of $600 (or 30% of the cost of the window upgrade, whichever is less) in tax credits, regardless of my taxable income. Is the tax credit allowed for 2022 or should I plan to wait until 2023?

I'm looking for some guidance on this too. My understanding - and I could be totally mistaken - is that the "old" credits ($500 lifetime max, $200 windows, etc.) have been extended to be applicable for 2022 tax year. Then the new expanded credits, with the new limitations, will be in effect starting January 1, 2023 for the 2023 taxable year.

We've already completed a number of projects (96% efficient gas furnace, attic insulation, 4 new windows) in 2022, and I need to figure out which tax law those projects are applicable for and what credits I may be eligible for.

According to Kiplinger, my understanding may be correct. Of course, we ultimately need to follow IRS guidance here (upon which I haven't seen yet) rather than Kiplinger guidance.

https://www.kiplinger.com/taxes/605069/ ... provements

The old, expired credit was worth 10% of the costs of installing certain energy-efficient insulation, windows, doors, roofing, and similar energy-saving improvements in your home. You could also claim the credit for 100% of the costs associated with installing certain energy-efficient water heaters, heat pumps, central air conditioning systems, furnaces, hot water boilers, and air circulating fans. However, there was a lifetime limit of $500 for the credit (e.g., credits taken in previous years counted towards the limit). There was also a $200 lifetime limit for new windows. These limits severely restricted the overall value of the credit. There were also other individual credit limits for air circulating fans ($50); some furnaces and boilers ($150); and certain water heaters, heat pumps, and air conditioning systems ($300).

The credit is revived for the 2022 tax year, and the old rules apply. However, 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. Roofing and air circulating fans will no longer qualify for the credit, though. Some of the energy-efficiency standards will be updated as well.

[Elsebet]

On a personal level it means I am going for new roof and solar by 2032. My roof probably has 5-10 years left so the timing lines up. Also hopefully batteries gets better/cheaper as that is really the only way solar truly makes sense (it is can cover 100% of energy needs not just needs in day time). The break even point is really pretty long without reasonable priced batteries.

I plan to do the same! I was looking at solar this year but my roof is 16 years old and it didn't make sense to replace it early just to get the credit. Now I can plan and put money away to do both at the same time.

[sapphire96]

I am not sure I understand the extension of the home energy credit. I had installed a heat pump in January 2022. I keep hearing the 2021 credit limits were extended into 2022, then the new credit limits will go into effect starting in 2023. However, when looking at the bill text, it appears the “new credit limits going into effect in 2023” would only apply to boilers.

Does anyone have clarity on what part of the bill refers to the old credit limits for heat pumps being applicable to 2022? If the new credit rules are applicable to 2022, then it will result in a larger refund for me for 2022 tax year.

[talzara]

For the rebates for middle-income people (not the tax credits), is there a calculator available yet that explains how the 150% of area median income is calculated?

It’s local, you should be able to look it up. Area median income is usually used to calculate benefits for social programs. You should be able to find 80% AMI easily and calculate from there. And yeah, it’s a cliff at 150%. As far as I know it’s annual income, not AGI.

Area median income is used to qualify for subsidized housing through the Department of Housing and Urban Development. Other housing and social programs also use AMI because the number is already available.

You can look up 30%, 50%, and 80% of AMI for your household size at the Department of Housing and Urban Development: https://www.huduser.gov/portal/datasets/il.html

The Inflation Reduction Act says that "annual income" must not exceed 150% of AMI, but it also says "demonstrated eligibility for another Federal program with income restrictions equal to or below 150 percent of area median income."

If you can find another federal program that uses a 150% limit and has a more favorable income calculation, then that would make it easier to qualify for the credits. The HUD income calculation doesn't help because HUD uses a lower limit to qualify for housing subsidies.

[talzara]

I plan to replace three windows in my house (in 2022 or 2023) with more energy-efficient windows. I had already used up the previous credits allowed when I replaced other windows in 2013. If I understand the climate bill correctly, I can expect to receive up to a maximum of $600 (or 30% of the cost of the window upgrade, whichever is less) in tax credits, regardless of my taxable income. Is the tax credit allowed for 2022 or should I plan to wait until 2023?

Since you have already used up the lifetime limit, you do not qualify for the credit in 2022. The lifetime limit will be replaced by an annual limit in 2023, so you would qualify for the credit again next year.

Also, the old limit of 10% or $200 still applies to windows for 2022. It only goes up to 30% or $600 in 2023.

[talzara]

My understanding - and I could be totally mistaken - is that the "old" credits ($500 lifetime max, $200 windows, etc.) have been extended to be applicable for 2022 tax year. Then the new expanded credits, with the new limitations, will be in effect starting January 1, 2023 for the 2023 taxable year.

I am not sure I understand the extension of the home energy credit. I had installed a heat pump in January 2022. I keep hearing the 2021 credit limits were extended into 2022, then the new credit limits will go into effect starting in 2023. However, when looking at the bill text, it appears the “new credit limits going into effect in 2023” would only apply to boilers.

All changes to the nonbusiness energy property credit take effect in 2023 unless otherwise stated, except for the extension of the credits. Since nothing else is going into effect for 2022, the extended credits are the existing credits with a $500 lifetime maximum.

That includes the annual limits, larger credits, and heat pumps. Boilers have a two-phase credit with effective dates of 2023 and 2027. Heat pumps do not have their own effective date, so they have the same 2023 effective date as everything else.

PART 3—CLEAN ENERGY AND EFFICIENCY INCENTIVES FOR INDIVIDUALS
SEC. 13301. EXTENSION, INCREASE, AND MODIFICATIONS OF NONBUSINESS ENERGY PROPERTY CREDIT.

(a) EXTENSION OF CREDIT.—Section 25C(g)(2) is amended by
striking ‘‘December 31, 2021’’ and inserting ‘‘December 31, 2032’’. ...

(i) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as otherwise provided by this subsection, the amendments made by this section shall apply to property placed in service after December 31, 2022.
(2) EXTENSION OF CREDIT.—The amendments made by subsection (a) shall apply to property placed in service after December 31, 2021.

https://www.congress.gov/117/bills/hr53 ... 376enr.pdf
(pp. 124-129)

[RetiredCSProf]

I plan to replace three windows in my house (in 2022 or 2023) with more energy-efficient windows. I had already used up the previous credits allowed when I replaced other windows in 2013. If I understand the climate bill correctly, I can expect to receive up to a maximum of $600 (or 30% of the cost of the window upgrade, whichever is less) in tax credits, regardless of my taxable income. Is the tax credit allowed for 2022 or should I plan to wait until 2023?

Since you have already used up the lifetime limit, you do not qualify for the credit in 2022. The lifetime limit will be replaced by an annual limit in 2023, so you would qualify for the credit again next year.

Also, the old limit of 10% or $200 still applies to windows for 2022. It only goes up to 30% or $600 in 2023.

Thanks -- then I will plan for the window replacement in 2023.

[harikaried]

30% credits are back and now extend to battery as well

It looks like waiting until 2023 to install batteries might be worthwhile as 3kWh+ battery storage only gets the "Residential Clean Energy Credit" treatment starting next year. Until then, batteries that are not only installed with but also only charged by solar can get credit via the existing "Investment Tax Credit" for 26%.

So if being able to charge batteries from the grid is important while still getting a tax credit, wait until 2023.

Our plan is to charge batteries overnight at 5¢/kWh to use throughout the day while solar production can be sold 50¢/kWh during peak hours.

[jplee3]

[Thread merged into here --admin LadyGeek]

I just read a recent headline about how the Inflation Reduction Act, if passed, will further incentivize EVs and solar. Does anyone know more of the details on this? We just signed a contract to put solar panels up (qualifying for the 26% federal tax credit) so wondering if there are any considerations (e.g. if we should hold off or defer the install of possible).

We are also getting a new heat pump installed in October so curious if there might be anh additional incentives with that? Just saw this article too: https://www.google.com/amp/s/www.kiplin ... ents%3famp

Its a little hard to track with everything there but it seems like we could claim all this as a tax credit?

[simplesimon]

I just read a recent headline about how the Inflation Reduction Act, if passed, will further incentivize EVs and solar. Does anyone know more of the details on this? We just signed a contract to put solar panels up (qualifying for the 26% federal tax credit) so wondering if there are any considerations (e.g. if we should hold off or defer the install of possible).

We are also getting a new heat pump installed in October so curious if there might be anh additional incentives with that? Just saw this article too: https://www.google.com/amp/s/www.kiplin ... ents%3famp

Its a little hard to track with everything there but it seems like we could claim all this as a tax credit?

Solar tax credit is going to 30% for 10 years and is retroactive to 2022 so no need to change anything there.

[njdealguy]

Looks like the renewed solar tax credit of 30% isn't tied to a income limit unlike the new version of the EV credits which are.