[FAQ] Revisions to section 25D Residential Clean Energy Credit

[Opus 17]

Decided to suss this one out too. 

Revisions to section 25D Residential Clean Energy Credit

1. Changes the name of the credit from Residential Energy Efficient Property Credit to the Residential Clean Energy Credit.
2. The credit is extended through December 31, 2034.
3. The phase-out schedule is changed. The credit percentage is 30% for property placed in service after December 31, 2021, and before January 1, 2033; 26% for property placed in service after December 31, 2032, and before January 1, 2034, and 22% for property placed in service after December 31, 2033, and before January 1, 2035.
4. The credit for qualified biomass fuel property is removed from section 25D because it has been added to section 25C.
5. Adds a credit for qualified battery storage technology expenditures as long as the storage capacity is 3 kWh or greater.

The change to the phase-out schedule is effective immediately (30% credit for property installed in 2022). The battery storage credit applies to property installed after December 31, 2022.

Source: 

https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_of_2022.pdf

Pages 351-353

Cross-checked with the most recent version here.

PDF (712KB)

Subject to change because it has not been signed by the President yet. 

[Bsch4477]

Both posts very helpful. Thanks. 

[NCperson]

@Opus 17 yes, both posts were very helpful.... will we see one for EV🤔 ? 

[Opus 17]

💵💰💰💰💰???

(problem is, I was already familiar with 25C and 25D.  I’ve managed to never learn much about the EV credit so it would be harder to put changes in context)

[Bsch4477]

Article on EV. 

https://www.kiplinger.com/taxes/605081/ev-tax-credit-inflation-reduction-act-2022-changes

[laurayoung411]

I would like to install new windows and solar panels. It looks like windows are covered under 25C and would be capped at  30%, but the max is $600 per year. If that's true it would only cover 30% of one or two windows... Solar Panels appear to be covered under 25D and capped at 30%... Is there also a yearly/lifetime max? Thanks!

[Opus 17]

---

@laurayoung411 wrote:

I would like to install new windows and solar panels. It looks like windows are covered under 25C and would be capped at  30%, but the max is $600 per year. If that's true it would only cover 30% of one or two windows... Solar Panels appear to be covered under 25D and capped at 30%... Is there also a yearly/lifetime max? Thanks!

---

Windows are in section 25C.  For 2022, the credit is 10% of the cost up to $200.  Starting in 2023, the credit is 30% of the cost up to a $600 annual maximum.  Suppose doing all your windows would cost $4000.  If you spend $4000 in 2023, your credit is $600.  If you did half the windows in 2023 and half in 2024 for $2000 each year, you could claim a $600 credit in both years.  But the credit is claimed when the windows are installed, not when they are paid for.  You would actually have to spread the installations over time to claim the credit in more than 1 year, not just spread out the payments. 

Solar electric is covered in section 25D.  The credit is 30% of the cost, and is claimed on the date the panels are placed in service (installed, inspected and turned on) regardless of when you pay for them.  Normally, you claim your system in the year it is installed.  However, if you come back in the future to install more panels and make your system more powerful, you could claim a credit for the new part of the system in the year it was placed in service. 

[SweetieJean]

Also see re Vehicles:

Guidance on clean vehicle tax credit - Journal of Accountancy

[M7536]

I bought and installed a high efficiency biomass boiler in 2022 that met the 75% thermal efficiency threshold for 25(d). I bought it expecting the 26% tax credit. I understand biomass goes to 25(c) in 2023, but what about 2022? Did the IRA retroactively reclassify my 2022 purchase/installation to 25(c)? The 25(c) $2,000 limit is a big change from the 25(d) credit (26% of the unit and installation is considerably greater than $2k). Thanks.

[Opus 17]

---

@M7536 wrote:

I bought and installed a high efficiency biomass boiler in 2022 that met the 75% thermal efficiency threshold for 25(d). I bought it expecting the 26% tax credit. I understand biomass goes to 25(c) in 2023, but what about 2022? Did the IRA retroactively reclassify my 2022 purchase/installation to 25(c)? The 25(c) $2,000 limit is a big change from the 25(d) credit (26% of the unit and installation is considerably greater than $2k). Thanks.

---

I'm a little handicapped here because my usual go-to source for the text of the actual law has been updated to the new language even though most provisions don't take effect until 2023.  What I believe is that for a biomass stove installed in 2022, you will claim the credit under 25D.  The increased percentage to 30% is retroactive, but the other changes (including moving the biomass provision to section 25C) are effective 1/1/23.  So the biomass stove is still under the old 25D rules for 2022.

(Also, FYI although it doesn't apply to you, the new maximum credit for a biomass stove is $2000; at a 30% rate, that is an installed cost of up to $6,666.  The credit is $2000, not the allowable installed cost.)