AMERICAN HOMEOWNERS … POTENTIAL TAX SAVINGS

You May Qualify for Residential Clean Energy Tax Credits

Energy improvements to your home may make you eligible to enjoy tax credits for a portion of qualifying expenses. To be eligible, it takes your investment in renewable energy for your home such as solar, wind, geothermal, fuel cells or battery storage technology.

If you expect to owe federal taxes this year, it’s worth investing a few minutes now to see how you may be able to lessen or eliminate that financial burden by taking advantage of one or more Residential Clean Energy Tax Credits.

What Are Tax Credits? 

So, let’s start with a brief lesson on “What are tax credits?”  The best way to describe tax credits is to contrast with what most taxpayers understand … tax deductions. Tax deductions reduce the amount of your income subject to tax.

Tax credits directly reduce your tax bill. 

For example, assume you spend $2,000 that results in a tax deduction. That will reduce your taxable income by $2,000. In a 25% tax bracket, you would save $500 in taxes.

Now compare that with a $2,000 tax credit. That amount is subtracted from the amount of tax owed not as an offset to income … as is the case with a tax deduction. Result: Your tax bill is reduced by the full $2,000 tax credit!

Tax credits outshine tax deductions when it comes to saving tax dollars. 

Why Is the Government Promoting Residential Clean Energy Tax Credits? 

The purpose is to encourage environmental improvements as one element in the U.S. government’s stated goal to achieve net-zero emissions of carbon dioxide. Energy-efficient homes use less energy to heat and cool as well as run appliances and electronics.

Improvements in energy efficiency is one of the easiest and most cost-effective ways to combat climate change plus reduce energy costs for consumers. Residential Clean Energy Tax Credits encourage homeowners to invest in those efforts that will advance realization of those goals.

Who Can Claim the Credits? Available Credits? Dollar Value of Credits? 

The credit amounts and types of qualifying expenses were expanded by the Inflation Reduction Act of 2022. In this article, we’ll help you compare the credits and determine whether any apply to expenses you’ve already incurred or may sustain in future improvements.

Who Qualifies to Claim the Credits 

Homeowners who improve their primary residence are the most likely candidates to discover opportunities to claim a tax credit for qualifying expenses. Renters may also be able to claim credits, as well as owners of second homes used as residences.

Note: The credits are never available for improvements to homes that you don’t use as a residence.

Available Credits 

Two “flavors” of tax credits are available … the Energy Efficient Home Improvement Credit; or the Residential Clean Property Credit. You may claim either of these credits for the year you make qualifying improvements.

Here are the details for each.

Energy Efficient Home Improvement Credit: 

The following expenses may qualify if they meet requirements detailed on energy.gov.

• Exterior doors, windows, skylights and insulation materials
• Central air conditioners, water heaters, furnaces, boilers and heat pumps
• Biomass stoves and boilers
• Home energy audits (up to 30 percent for audits that cost up to $500 … maximum credit is $150)

Your credit is a percentage of your total improvement expenses in the year installed.

• 2022: 30% (up to a lifetime maximum of $500)
• 2023 through 2032: 30%, (up to a maximum of $1,200 … biomass stoves and boilers have a separate annual credit limit of $2,000 … no lifetime limit)

For detailed info click on this link …  Energy Efficient Home Improvement Credit.

Residential Clean Energy Credit: 

The following expenses may qualify if they meet requirements detailed on energy.gov.

• Solar, wind and geothermal power generation
• Solar water heaters
• Fuel cells
• Battery storage (beginning in 2023)

Your credit is a percentage of your total improvement expenses in the year installed.

• 2022 to 2032: (30%, no annual maximum or lifetime limit)
• 2033: (26%, no annual maximum or lifetime limit)
• 2034: (22%, no annual maximum or lifetime limit)

For detailed info click on this link … Residential Clean Energy Credit

Consider this example of a significant tax credit.
A homeowner who installs solar panels at a cost of $30,000 is eligible for a $9,000 credit!
That translates to the maximum 30% discount on the expense for this qualifying home improvement.

Caution! The qualifications, limitations and taxpayer requirements are complex. 
The foregoing is meant as an overview only. If you have a thirst for research, see the links below.

Better yet, give us a call and we’ll help you determine 
if you qualify and for how much.

Research Resources 

• Inflation Reduction Act of 2022
• Frequently asked questions about energy efficient home improvements and residential clean energy property credits — Energy Efficient Home Improvement Credit: Qualifying Expenditures and Credit Amount
• Frequently asked questions about energy efficient home improvements and residential clean energy property credits — Energy Efficiency Requirements
• Credits and Deductions Under the Inflation Reduction Act of 2022
• Interactive guide to energy credits available under the Inflation Reduction Act
• 5 Ways to Save in 2023 with Home Energy Tax Credits