Tax Credits and Incentives in the Inflation Reduction Act for Homeowners and Consumers

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As a homeowner, you might be wondering how you can take advantage of the Inflation Reduction Act (IRA) to improve the energy efficiency of your home.  People have been talking about different components of the plan individually, so if you’re having problems looking at how the different pieces of the act can fit together, it totally makes sense!

Since the unexpected announcement of the IRA, Small Planet Supply has been following (as well as we can) the features of the act homeowners (and even renters, in the case of the electric vehicle credit) might be most interested in.  Here’s a brief summary of what we found exciting in the legislation.

The Two Major Programs for Home Improvements Under the Inflation Reduction Act

The Inflation Reduction Act offers two avenues for homeowners to fund interior and exterior improvements energy saving improvements.  In addition, the act extends tax incentives for solar panels, and for the first time provides incentives on home battery systems and used electric cars.   

The first program is the Energy Efficient Home Improvement Credit EEHIC a program with incentives for home efficiency improvements. Under the EEHIC program, a tax credit for 30% of eligible costs (up to specific item and program limits) up to $1,200 is applied directly to taxes owed on your federal income tax.

The second program funding under the High-Efficiency Electric Home Rebate Act (HEEHRA).  HEEHRA is a rebate program for low- to moderate-income (LMI) households that helps homeowners to switch to electric home appliances and systems.  The HEEHRA program allows sellers of high efficiency products to offer an up-front rebate on products to eligible customers.    If you’re not sure whether your household income makes you eligible for the HEEHRA funds, you can go to the HUD income page to check.  

Besides less cost to homeowners, there are more eligible items in the HEEHRA program, including electric stoves and heat pump clothes dryers. The potential drawback to the HEERHA program is that each state needs to apply for their portion of the funding and will need to determine how to administer the funds.  The ability to access the funds under this program will be limited by whether the state applies for the funding and how quickly each state is prepared to begin administration of the funds.

The above chart illustrates some of the main differences between the programs.

A Great Starting Resource for Understanding Eligibility

If reviewing these two programs is still leaving you with a lot of questions, we’ve found a great resource to help you get started.  It’s Rewiring America’s Inflation Reduction Act calculator. 

By simply putting in your zip code, your household income, your filing status and your household size, you can get a guide about what you might be eligible for under the program. 

Other Energy Efficiency Items in the Inflation Reduction Act

Solar Energy and Energy Storage Devices 

Formerly called the Residential Energy Efficient Property Credit, the Residencial Clean Energy Credit has returned the tax credit amount to 30% for not only solar systems, but energy storage systems.  Battery systems are eligible whether they are part of a solar system or not.  The battery must have a capacity rating of 3 kWh or greater and be installed after December 31, 2022. 

The following expenses are eligible:

  • Solar PV panels or PV cells (including those used to power an attic fan, but not the fan itself)

  • Contractor labor costs for onsite preparation, assembly, or original installation, including permitting fees, inspection costs, and developer fees

  • Balance-of-system equipment, including wiring, inverters, and mounting equipment

  • Energy storage devices that have a capacity rating of 3 kilowatt-hours (kWh) or greater (for systems installed after December 31, 2022). If the storage is installed in a subsequent tax year to when the solar energy system is installed it is still eligible, however, the energy storage devices are still subject to installation date requirements i

Clean Vehicle Credit is Extended and Expanded

The Inflation Reduction Act extends the Clean Vehicle Credit until the end of 2032 and creates new credits for previously-owned clean vehicles and qualified commercial clean vehicles.

Tax credits include up to:

  • Up to $7,500 for the purchase of new qualified commercial clean vehicles. To be eligible for the full $7,500.00, the vehicle battery must have critical minerals that were extracted or processed in the U.S. or countries with which the U.S. has a free trade agreement, or use critical minerals that were recycled in North America. Vehicles not meeting this criteria will be eligible for $3,750 tax credit.

  • $40,000 for vehicles over 14,000 pounds; and

  • The lesser of 30 percent of the price of used electric vehicles or $4,000.

Limitations apply based on the manufacturer’s suggested retail price of the vehicle. There are also limitations for the new vehicle credit based on adjusted gross income (AGI) thresholds – for single or married filing separately taxpayers, the limit is $150,000; for taxpayers filing as head of household, the limit is $225,000; and for married filing jointly, or surviving spouse taxpayers, the limit is $300,000.

In 2023 a tax credit is available for used cars, however there are lower income limitations that apply to the used vehicle credit.  The income cap for eligibility is $75,000 AGI for single filers, $112,500 AGI for head of household and $150,000 AGI for joint filers. The credit can only be applied once per vehicle and must be purchased from a dealer.

Since you’ll most likely need an at home charger, you’ll be glad to know that tax credits are also available for installing an electric vehicle charger.

With 2023 less than three weeks away, now is a great time to start prioritizing ways to take advantage of the ways you can save money on energy efficient upgrades in the Inflation Reduction Act for your home or for your next vehicle purchase.  And, remember, there may be additional incentives offered by your state, city or local utility district.

GETTING STARTED: RESOURCES

Small Planet Supply | Inflation Reductin Act | Resources

For great information about how to take advantage of the Inflation Reduction Act and help in starting your strategy, check out:
Rewiring American’s Guide to the Inflation Reduction Act and their Rewiring America’s Inflation Reduction Act calculator. 

For more information about solar system credits:
Department of Energy’s Homeowner’s Guide to the Federal Tax Credit for Solar Photovoltaics

For help determining general income eligibility for tax credits:
Database of State Incentives for Renewables and Efficiency website

July 2023 Blog Post Update

During 2023, participating states will be working on building the infrastructure for their High Efficiency Electric Home Rebate Act programs funded under the Inflation Reduction Act. To find your state energy office, you can use the list of all state energy offices provided by the Department of Energy.

On April 25, the U.S. Department of Energy (DOE) launched the Energy Savings Hub — an additional resource for American families and consumers to access information about incentives available under the Inflation Reduction Act.

January 2023 Blog Post Update

The Internal Revenue Service released a tax bulletin in December 2022 after this original blog post was published. The Fact Sheet issues frequently asked questions about energy efficient home improvements and residential clean energy property credits.

This guide should be helpful in ensuring that planned energy-efficiency improvements will be considered eligible for the federal tax credit.

You can get the bulletin by clicking here or on the graphic to the right.