It’s almost time to commemorate Earth Day: To celebrate going green, we will look at tax credits that help save you money while you make your home a bit more energy efficient.
Before we get into specifics, one positive thing to note for your taxes is these tax benefits are credits, so unlike deductions, they reduce the taxes you owe dollar-for-dollar.
Clean Vehicle Credit
Not only can you save money by not having to purchase gas with your electric car but the Clean Vehicle Credit is a dollar-for-dollar credit that can reduce taxes you may owe and potentially lower your taxes owed by $7,500.
Under the Inflation Reduction Act, people who purchased new electric vehicles are eligible for a tax credit up to $7,500. Also, starting January 1, 2023, people who purchase used electric vehicles may be eligible for a credit of 30% of the sale price up to $4,000 depending on their income.
Most of the changes to electric vehicle credits under the Inflation Reduction Act are effective with electric vehicles purchased starting January 1, 2023. The only change in the law that was effective immediately starting on August 17, 2022 is that new electric vehicles must receive final assembly in North America. People who entered a binding contract to purchase a new electric vehicle before the Inflation Reduction Act passed can follow the previous rules in place.
Credit for Electric Chargers Installed at Your Home or Business
If you equipped your home or business with electric charges, you may be eligible for the Alternative Fuel Vehicle Refueling Property Credit to reduce your tax liability.
You could be eligible for a credit of 30% of the cost associated with the hardware and installation of electric vehicle chargers installed in your home in 2022. This credit is a one-time non-refundable tax credit for a maximum of $1,000 or 30 percent of the cost – whichever is lower.
Residential Energy Efficient Property Credit
The Residential Energy Efficient Property Credit is a hefty credit for making energy improvements to your home and offers a generous credit worth up to 30% if you purchase the energy efficient equipment from January 1, 2022, through December 31, 2032 – think what you spent on solar hot water heaters, solar power (the photovoltaic panels you are starting to see on roofs) and wind turbines.
If the credit is more than your total tax bill for the entire year, the remainder can be carried forward to next year. The installation of these systems must be in the US and in your main home. Your main home is generally the home you live in most of the time.
Each state has its own rebates which help to reduce your cost. Check out the Database of State Incentives for Renewables & Efficiency to see what your state offers. With the cost of electricity rising, and the cost of solar panels continuing to fall, it makes sense to see if this is a wise purchase for your house and the tax credit may tip the math to favor going solar or simply make a good deal better.
Non-Business Energy Property Credit
Prior to the Inflation Reduction Act, the Non-Business Energy Property Credit, which has now been renamed the Energy Efficient Home Improvement Credit, was worth 10% of the cost and gave taxpayers up to a $500 lifetime limit on qualified energy efficient items installed in their homes, like qualified insulation, windows, doors, and roofs, through December 31, 2022.
As a result of the Inflation Reduction Act, the credit is now worth up to $1,200 per year for a qualifying property placed in service on or after January 1, 2023 and before January 1, 2033. Since the credit now has an annual limit rather than a lifetime limit, you could spread your home improvements over the current 10-year life of the credit and receive $12,000 in tax benefits. If you make qualified investments in heat pumps and biomass stoves and boilers, you could also receive up to an additional $2,000 per year.
Don’t worry about knowing these tax laws. Meet with a TurboTax Full Service expert who can prepare, sign and file your taxes, so you can be 100% confident your taxes are done right. Start TurboTax Live Full Service today, in English or Spanish, and get your taxes done and off your mind.
Do the math and see if going ‘green’ is not just good for the planet, but for your wallet, too.
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