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Conserve Energy - Get Tax Credits!

KarenL
Employee Tax Expert
1 0 465

energy credits 2.jpgWho knew conserving energy could put so many tax dollars in your pocket?! It’s no secret that there’s an ever-increasing movement toward energy efficiency in recent years (decades, really). The push is so strong that even the IRS continues to jump on the eco-friendly bandwagon with Energy Tax Credits

Every homeowner and car driver needs to be aware of these wonderful (in many ways) tax credits. If you don’t have a clue what I’m talking about, start with the basics on what energy tax credits actually are and what it means to get one. For the rest of you, keep reading because there’ve been some recent changes and they’re for the better!  

LET THE SUN SHINE! 

Solar energy is all the rage - and it should be! The sun is essential to life, why not let it be essential to our energy needs as well?!  It seems the IRS agrees with a big YES to tax savings!

Under current tax law, the solar energy credit is a massive 30%! That's a big chunk of money when you consider the cost of solar panels in the average home. Even better, this credit isn’t going away any time soon. The solar energy efficient equipment can be purchased and installed between January 1, 2022 through December 31, 2032. 

And it’s not just limited to solar panels. It includes any solar-powered equipment that generates electricity or heats water. Certain solar power storage equipment counts too, in addition to qualifying installation charges. Keep those receipts!

The solar energy tax credit is just one aspect of the Residential Clean Energy Credit(s). But before we go any further, you should know that the clean energy credits are what is called a “non-refundable” credit. This simply means they can offset your income tax liability dollar-for-dollar. If you have any extra tax credit left over (more than your tax liability) there’s no need to be concerned. For most of these credits, you can roll over the unused portion to future years  - just as long as the credit is still in place.

UPDATE YOUR HOME FOR TAX CREDITS!

Get a new heater, air conditioner, windows, doors, and more! You can even replace your home insulation and get a credit for that. If you were planning to make home improvements anyway, now’s the time to do it! Take advantage of the Energy Efficiency Home Improvement Credit while it’s here for you.

Okay - for the sake of full disclosure, there are limits to the amount of tax credit you can receive for a specific improvement, as well as a yearly limit. Starting January 1. 2023, the credit is the lesser of 30% of the total for all the qualifying improvements or $1,200. 

Here are the limits for specific items that go toward that $1,200 max:

  • Exterior doors - $250 each ($500/yr max)
  • Exterior windows/skylights, central A/C units, electrical related equipment (such as panels), natural gas, propane and oil water heaters, furnaces or hot water boilers -  $600
  • Home energy audits - $150

But wait, there’s more! The total yearly tax credit, under this section of the energy credits, is actually up to $3,200! In addition to the $1,200 tax credit limit above, a separate aggregate yearly credit limit of $2,000 applies to electric or natural gas heat pump water heaters or heat pumps, and biomass stoves and boilers. 

A huge improvement of this credit is that there is no more lifetime maximum! You can improve your home year after year (through 2032) and receive a maximum of $3,200 in tax credits each year! Pretty good deal, if you ask me! Maybe you should plan it out in phases - pace yourself before whipping out that credit or debit card!

And to help you out even more, here’s a list of 10 Energy-Related Home Improvements You Can Make Today.

HOW ABOUT A NEW CAR - KEEP IT CLEAN (WITH BENEFITS)! 

The vehicle tax credit “powers that be” have recognized that to be a “clean” energy vehicle, it doesn’t necessarily mean “electric” vehicles. There are innovations in clean energy emerging all the time. A vehicle that uses hydrogen fuel cell technology and many plug-in hybrids may also qualify for the up to $7,500 Clean Vehicle Credit. And this credit is good through December 31, 2032.

A big improvement for the vehicle tax credits is that there is no rush to get yours! The manufacturing make/model limits are gone. Another interesting perk (starting in 2024) is that you can now get the vehicle tax credit right at the dealership (off the price of your qualifying vehicle purchase). You don’t have to wait until you file your tax return!  You choose - lower purchase price or tax credit!

Because of the large dollar amount of this tax credit, of course there are qualifiers. One item to be aware of is that the $7,500 is actually broken into two (up to) $3,750 credits. The two parts are a critical minerals requirement and a battery components requirement. While this may not mean much to you, your automobile dealer will know if your vehicle qualifies for both parts of the Clean Vehicle credit.  

There are other requirements as well. For example, the vehicle's manufacturer suggested retail price (MSRP) can't exceed:

  • $80,000 for vans, sport utility vehicles and pickup trucks
  • $55,000 for other vehicles

And with several high value tax credits, there are often income limitations. In the current or prior year, your Modified Adjusted Gross Income (MAGI) must be below:

  • $300,000 if married filing jointly 
  • $225,000 if filing as head of household
  • $150,000 for all other filers

Can’t afford a brand new clean vehicle? I guess I should mention that there’s a used car component to this too! For used vehicles, the credit is up to $4,000 - depending on income levels. And because the car prices are lower, the income levels per filing status are cut in half too (modified adjusted gross income cannot exceed $150,000 married filing jointly, $112,500 head of household, $75,000 other filers). 

No matter if you buy new or used, start here to find out if you qualify

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Here’s a little extra to help with navigating TurboTax and the required tax forms:

Where do I enter qualified energy-saving improvements?
Filing Tax Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit
What Is the IRS Form 5695?
Electric Car Tax Credit: What is Form 8834?
What is a clean vehicle tax credit?

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