The Inflation Reduction Act, signed into law last year, is a game changer for homeowners looking to make green home improvements and save money on utility bills.
“It’s a monumental piece of tax legislation” that’s packed with tax credits and deductions, says Mark Steber, chief tax officer at Jackson Hewitt.
Say farewell to lifetime limits: Until the end of 2021, homeowners could claim a credit for installing certain energy-efficient insulation, windows, doors, roofing and other home improvements. But the credit had a modest lifetime cap.
No more. The Inflation Reduction Act’s Energy Efficient Home Improvement Credit lets homeowners claim a tax credit for up to 30% of the cost of qualifying home improvements, up to $1,200 per year. The credit is valid through 2032.
However, there are annual dollar limits for certain items:
1. $250 per exterior door (up to $500)
2. $600 for exterior windows and skylights; central air conditioners; electric panels and wiring; natural gas, propane or oil water heaters; natural gas, propane or oil furnaces; and hot water boilers
One exception: There’s a more generous yearly credit limit of $2,000 for heat-pump water heaters and heat pumps for heating and cooling your home that meet the highest “non-advanced” efficiency tier of the Consortium for Energy Efficiency.
Install clean-energy systems: Before the new law kicked in, you could take a tax credit of up to 26% of the cost to install qualifying systems that use solar, wind, geothermal, biomass or fuel-cell power to produce electricity, heat water or regulate the temperature in your home. Now consumers can qualify for a clean-energy credit of up to 30% for eligible expenditures from 2022 through 2032. The credit then slides to 26% for systems installed in 2033 and 22% for systems installed in 2034, and it expires after 2034.
The law also extends the tax credit for installing electric-vehicle charging stations at homes through 2032, up to 30% per charger, with a maximum credit of $1,000. The credit now also applies to other EV charging equipment, such as two-way chargers.
Take advantage of rebates: The new High-Efficiency Electric Home Rebate program will offer nearly $9 billion in rebates to low- and middle-income families who purchase energy-efficient electric appliances.
To qualify for a rebate, your family’s total annual income must be less than 150% of the median income where you live. Qualifying homeowners can receive rebates for as much as:
$840 for a stove, cooktop, range, oven or heat-pump clothes dryer
$1,750 for a heat-pump water heater
$8,000 for a heat pump for space heating or cooling
There will also be rebates for other upgrades, up to:
$1,600 for insulation, air sealing and ventilation
$2,500 for electric wiring
$4,000 for an electric load service center upgrade
The rebate program is expected to launch later this year, says Ben Evans, federal legislative director at the U.S. Green Building Council. The rebates will be managed by each state’s energy office. “Once these programs get up and running, we’ll have more guidance around how to apply for the rebates, but we know that these rebates will be quite lucrative for a lot of people,” he says.