The Inflation Reduction Act – What’s in it and how does it impact you?

Spinnaker Investment Group CEO, Morgan Christen, sits down with accountant and tax partner at
SpinnTax Jessica Estrada to learn more about the Inflation Reduction Act and the impact on you.

 

While the bill is a misnomer as there doesn’t appear to be much help for inflation, there may be some
tax credits that may help you.

 

Morgan Christen: What changes have been made to the energy-efficient home improvements?

Jessica Estrada: The old credit that expired in 2021 was only worth 10% of the costs of installing certain
energy efficient improvements such as windows, roofing, doors, insulation, etc. and 100% of the costs
associated with installing energy efficient water heaters, heat pumps, furnaces, etc. The Inflation
Reduction Act has revived the credit for 2022 and the old rules will apply for 2022. However,
beginning in 2023 the credit will increase from 10% to 30% of the costs of eligible home improvements
made. The revised credits will be extended through 2032.

Under the old law, there was a lifetime credit limit of $500 and this will be increased to a $1,200
annual limit on the credit amount. This allows you to claim a $1,200 credit each year and encourages
homeowners to spread out their home improvement projects so they can claim the maximum $1,200
credit each year. The annual limits have also been increased starting in 2023 as follows.

  • $150 for home energy audits (provides analysis of your home’s energy use).
  • $250 for an exterior door ($500 total for all exterior doors).
  • $600 for exterior windows and skylights; central air conditioners, electric panels, and certain
    related equipment; natural gas, propane, or oil water heaters; natural gas, propane, or oil
    furnaces or hot water boilers.
  • $2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps
    and biomass stoves and boilers (the $1,200 annual limit is allowed to be exceeded for this
    category).

 

MC: What is the Residential Clean Energy Credit?

JE: The Residential Clean Energy Credit under the Inflation Reduction Act was scheduled to expire in
2024 and has been extended through 2034. The previous credit was worth 26% of the cost to install
qualified systems (i.e., solar, wind, geothermal, etc.) and starting in 2022 this credit has jumped to 30%.
The credit is scheduled to decrease from 30% to 26% in 2033 and then 22% for 2034. Beginning in 2023,
this credit will apply to battery storage technology as well.

 

MC: What changes have been made to the alternative fuel refueling property credit?

JE: Homeowners installing equipment used to recharge an electric vehicle (EV) can claim a credit worth
30% of the costs up to $1,000. This credit was set to expire at the end of 2021 and has been extended
through 2032.

Businesses that install EV chargers can claim a credit of up to 30% of the total costs of equipment and
installation. The credit was previously limited to $30,000 (through 2022) and has now been increased to
$100,000 starting in 2023.

 

MC: What can you expect for the Electric Vehicle Tax Credit?

JE: The Inflation Reduction Act extends the $7,500 credit for Electric Vehicles (EV) through 2032. The
act also extended the credit to used EV’s (to qualify the car must be at least 2 years old) of up to $4,000
or 30% of the price of the vehicle, whichever is less. Some plug-in hybrid vehicles can also qualify for the
EV credit. Historically the EV credit had to be claimed on your tax returns. However, starting in 2024,
you can transfer the credit to the dealer and claim the tax credit as a discount at the time you purchase
the vehicle and not wait until you file your annual tax returns.
Previously EV credits were not limited based on income thresholds. However, under the Inflation

Reduction Act there will be income limits imposed on who can claim the credit. You cannot claim the
EV tax credit if your modified adjusted gross income (AGI) is over $150,000 for single taxpayers,
$300,000 for married taxpayers, or $225,000 if you are head of household. Additionally, new vehicles that are more than $80,000 won’t qualify for the credit and used vehicles that cost more than $25,000 won’t qualify.

Previously the EV credit phased out if the manufacturer produced more than 200,000 electric vehicles.
However, the act removes that cap which means the credit will be available to all manufacturers again
starting in 2023. The act also requires that the final assembly of the vehicle must occur in North
America. Click here to see the full list of electric vehicles with final assembly in North America. You can
also view the list of vehicles that qualify for the EV credit here.

 

As always, contact your tax adviser to see if these are applicable for you. We are also here to help you
with question you may have.

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  • Dayton Hostetler

    5 days ago

    Thanks for the helpful information.

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