New Energy Tax Credits
The President signed the Inflation Reduction Act into law on August 16, 2022. It contains some valuable tax credits for homeowners.
When it comes to taxes, nothing is better than a tax credit since it is a dollar-for-dollar reduction in the taxes you must pay (unlike a tax deduction that only reduces your taxable income). In other words, a $1,000 credit saves you $1,000 in taxes.
The new law extends and expands three tax credits intended to encourage homeowners to make their homes more energy efficient and facilitate the use of electric vehicles.
Energy Efficient Home Improvement Credit
The new law creates the 2023 Energy Efficient Home Improvement Credit that helps homeowners pay for various types of energy efficiency improvements, including:
· exterior windows, skylights, and doors;
· home insulation;
· heat pumps, water heaters, central air conditioners, furnaces, and hot water boilers;
· biomass stoves and boilers; and
· electric panel upgrades.
The old credit contained a tiny $500 lifetime cap. Lifetime caps are gone beginning in 2023.
Instead, the new law gives you a $1,200 annual cap along with specific caps on some improvements. But overall, you can perform many energy efficiency projects over several years and collect a credit each year.