Home upgrade credit news
The Inflation Reduction Act of 2022 (IRA) was passed in August of 2022 and improved the credit for people who make certain home upgrades.
I have been contacted by readers of this column requesting more information regarding the new credit for home upgrades when it becomes available. The IRS recently released a Fact Sheet for the Energy Efficient Home Improvements Credit and the Residential Clean Energy Property Credit. I want to emphasize that the IRS stated that the Fact Sheet is not tax law yet, and the rules may change. However, I wanted to provide the latest credit news for the readers as it becomes available.
The Energy Efficient Home Improvement Credit previously had a $500 lifetime. Beginning in 2023, the annual credit is $1,200. The amount of the credit is 30% of the sum of the amounts paid for certain qualified expenditures.
The following energy-efficient home improvements are eligible for the Energy Efficient Home Improvement Credit:
- Building envelope components satisfying the energy efficiency requirements: This includes expenditures for exterior windows and skylights (30% of costs up to $600); exterior doors (30% of costs up to $250 per door, up to a total of $500); and insulation materials or systems and air sealing materials or systems (30% of costs).
- Home energy audits (30% of costs up to $150).
- Residential energy property (30% of the costs, including labor, up to $600 for each item). This includes natural gas, propane, or oil furnaces and hot water boilers; central air conditioners; natural gas, propane, or oil water heaters; and improvements to or replacements of panelboards, branch circuits, sub-panelboards, or feeders that are installed with building envelope components or other energy property.
- Heat pumps, biomass stoves, and biomass boilers (30% of costs, including labor) satisfy the energy efficiency requirements. This includes electric or natural gas heat pumps, biomass stoves, biomass boilers, and electric or natural gas heat pump water heaters.
There is no dollar limit for the Residential Clean Energy Property Credit. The following residential clean energy expenditures are also eligible for the Residential Clean Energy Property Credit of 30% of the cost:
- solar water heating property expenditures (solar water heaters)
- solar electric property expenditures (solar panels)
- geothermal heat pump property expenditures
- small wind energy property expenditures (wind turbines)
- fuel cell property expenditures
- battery storage technology expenditures
In 2033, the credit percentage rate phases down to 26 percent and 22 percent for property placed in service in 2034. The credit is not available for property placed in service after December 31, 2034.
According to the IRS news release, if the rules change, you will not be subject to a penalty if you reasonably acted in good faith and relied on the current information.
More details can be found in IRS Fact Sheet FS-2022-40.
David Zubler is a tax accountant and Enrolled Agent in East Tennessee, providing tax strategies and representing clients before the IRS and has over 25 years of tax experience. He is the author of six tax books and has shared tax advice on national TV. He is the founder and president of Your Tax Care. The company provides business and tax education, including David’s one-minute tax tip radio recordings at YourTaxCare.com. David can be reached at (865) 363-3019 or contacted by email at david@yourtaxcare.com.