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If you make energy improvements to your home or purchase an electric vehicle, tax credits may be available for a portion of qualifying expenses. The credit amounts and types of qualifying expenses were expanded by the Inflation Reduction Act of 2022, which will be applied to purchases in 2023 and future years. Here is a summary of those changes and how they can be applied to your tax return.
Energy Efficient Home Improvement Credit
Beginning January 1st, 2023, this credit became subject to an annual aggregate $1,200 maximum benefit. Furthermore, within the $1,200 maximum credit, certain credit limits apply to specific energy efficient improvements including:
- Home energy audits: $150.
- Exterior doors: $250 per door (up to $500 per year).
- Exterior windows and skylights, central A/C units, electric panels and related equipment, natural gas, propane and oil water heaters, furnaces or hot water boilers: $600.
In addition to the $1,200 credit limit above, a separate aggregate yearly credit limit of $2,000 applies to electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and biomass boilers. The maximum total yearly energy efficient home improvement credit can amount up to $3,200. This would apply for tax year 2023 and beyond.
Residential Clean Energy Credit
The Residential Clean Energy (RCE) Credit is a renewable energy tax credit that is worth 30% of certain qualified expenses for a residential clean energy property.
Equipment that qualifies for the Residential Clean Energy Tax Credit includes the following:
- Solar panels, or photovoltaics for generating electricity.
- Solar-powered water heaters for water used inside the home (at least half of the home’s water-heating capacity must be solar and water for swimming pools and hot tubs doesn’t qualify).
- Battery storage technologies.
Clean Vehicle Credit – New
A tax credit up to the maximum benefit of $7,500 is available for the purchase of a new, qualified plug-in EV or fuel cell electric vehicle. The credit is available to individuals and their businesses.
Individuals are now able to claim this credit immediately at the dealership versus having to wait until they file their tax return. Make sure to verify you are under the income limitations before moving forward with this option.
To qualify, the individual must:
- Purchase a new and qualified vehicle.
- Buy it for their own use, not for resale.
- Use it primarily in the U.S.
In addition, their adjusted gross income (AGI) may not exceed:
- $300,000 for married couples filing jointly.
- $225,000 for heads of households.
- $150,000 for all other filers.
An individual can use the AGI from the year they take delivery of the vehicle, or the year before – whichever is less. If their AGI is below the threshold in one of the two years, they can claim the credit.
The credit is nonrefundable, meaning you may not receive the full credit if you owe less than $7,500 in taxes and any excess credit cannot be applied to future tax years.
Clean Vehicle Credit – Used
From January 1st, 2023, there is also a tax credit available for the purchase of a qualified used electric vehicle or fuel cell vehicle from a licensed dealer for the purchase price of $25,000 or less. This credit equals 30% of the sale price up to a maximum credit of $4,000.
To qualify, the individual must:
- Purchase a qualifying used vehicle in the year 2023 or later.
- Be an individual who bought the vehicle for use and not for resale.
- Not be the original owner.
- Not be claimed as a dependent on another person’s tax return.
- Not have claimed another used clean vehicle credit in the 3 years before the purchase date.
In addition, their adjusted gross income (AGI) may not exceed:
- $150,000 for married filing jointly or a surviving spouse
- $112,500 for heads of households
- $75,000 for all other filers
Similar to the new vehicle credit you can use 2023 AGI or 2022 AGI and the credit is nonrefundable.
Thank you very much and have a great day!