Energy Tax Credits & Rebates You Can Take with the Inflation Reduction Act
Stay tuned to see whether President Biden’s Inflation Reduction Act curbs inflation. But it does contain tax breaks and credits to cut greenhouse gas emissions. Whether you’re in the market for an electric vehicle or want to reduce your utility bills, you may be interested in the new rules.
This article briefly outlines what’s available. But you’ll need to be a savvy shopper, given the staggered timelines and requirements. Before you start hiring contractors or heading to a car dealership, check out the White House’s CleanEnergy.gov website for updates.
Electric Vehicles
The Inflation Reduction Act provides tax credits for purchasing new or used “clean vehicles,” including electric vehicles and plug-in hybrids. You can receive a tax credit up to:
$7,500 for a new vehicle
$4,000 for a used vehicle
What else do you need to know? Well, your purchase date matters a lot. For new cars purchased in:
2022: Your car must have been assembled in North America. Given the requirements of an already existing EV tax break, you cannot get a tax credit for a GM or Tesla vehicle (this changes in 2023).
2023 onward: The vehicle must have been assembled in North America, and the battery must meet new mineral sourcing rules. The manufacturer’s suggested retail price (MSRP) must be $55,000 or less for cars and $80,000 or less for pickup trucks, vans, and SUVs. Your modified adjusted income (MAGI) must be less than $150,000 if you’re single and $300,000 if you’re married.
There is no 2022 tax credit for used cars. Starting in 2023, you can receive a used-EV tax credit if your MAGI is less than $75,000 single or $150,000 joint. The vehicle must cost less than $25,000 and be under two years old.
One other point: For 2022 and 2023, you’ll receive your tax credit when you file your income tax returns—but only if you owe taxes. For 2024, you can receive the credit as a point-of-sale discount.
Finally, you may be eligible for incentives from your state, municipality, and utility companies. Enter your zip code on this PlugStar Incentives webpage to see what may be available for you.
Home Efficiency Upgrades
The Inflation Reduction Act provides two tax deductions to encourage upgrades for conserving energy:
Starting in 2023, you can receive a tax break for installing such items as energy-efficient exterior windows, insulation, heat pump water heaters, and electric panel upgrades. The annual tax deduction will be capped at $1,200, or $2,000 for an electric heat pump. The credit ends in 2033 for most items—check the CleanEnegy.gov website for up-to-date rules.
You can also receive a 30% tax credit for installing solar panels or other renewable-energy items. The credit is available retroactively to the beginning of 2022 and extends to 2032. The credit drops to 26% in 2033 and 22% in 2034.
In addition, two point-of-sale rebates will be available in participating states, probably in late 2023:
The HOMES program offers up to $4,000 in rebates ($8,000 for low- and middle-income households) for reducing a home’s energy consumption through improvements like insulation.
The high-efficiency electric home rebate program provides up to $14,000 for energy-efficient appliances and upgrades such as certain clothes dryers and electric stoves. The program is available to households earning less than 150% of the local area’s median income.
Final Thoughts
Planning your budget is essential whether you buy an electric vehicle or make your house energy efficient for your use or as a home selling point. We work with clients to purchase new vehicles and complete home improvement projects as part of their comprehensive financial planning and investment management.
We offer a complimentary 15-minute call to discuss your financial situation and concerns and share how we may be able to help.
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