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Yoyoguy
Level 2

Heat pump: Inflation reduction act

When Inflation reduction act goes effective, there is a $2,000 tax credit for installing heat pumps. ‘‘Sec. 25C. Energy efficient home improvement credit.’’.

Is it applicable to heat pumps installed in between Jan 1, 2022 and Dec 31, 2022?  Or, what's the meaning of below line.

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

- Page 351 says "(2) EXTENSION OF CREDIT.—The amendments 2 made by subsection (a) shall apply to property placed 3 in service after December 31, 2021. "

1 Best answer

Accepted Solutions
Opus 17
Level 15

Heat pump: Inflation reduction act

@Yoyoguy 

It’s very difficult because you have to read the entire section of the act from page 338 through 351 and you have to cross reference back to the current law section 25C.

 

After the sentence you quoted, it also says this:

EXTENSION OF CREDIT.—The amendments made by subsection (a) shall apply to property placed in service after December 31, 2021.


Section a is the extension of the expiration date only.  So the combination of the two statements seems to indicate to me, that the credit is extended as is (10% and $500 lifetime maximum)  retroactive to January 1, 2022. However, the enhanced credit of 30% with a $1200 (or $2000) annual limit is effective on January 1, 2023.

 

This is actually pretty sensible, because it gives people and the IRS time to plan, and reverse is a trend of Congress making huge changes to the tax laws retroactively. However, if I read it correctly, you will want to hold off installing a new heat pump until next year, if you can.

 

I am not a tax attorney, and you should wait for more authoritative explanations.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

View solution in original post

12 Replies
Critter-3
Level 15
Yoyoguy
Level 2

Heat pump: Inflation reduction act

The post does not answer my question though.

Critter-3
Level 15

Heat pump: Inflation reduction act

I refuse to read such a hard to read article ...  so just  wait a couple of weeks until the ink dries on the bill  and plain english explanations are posted instead of confusing technical language. 

Opus 17
Level 15

Heat pump: Inflation reduction act

Section 25C, before the act, provided a 10% credit for installation of efficient doors, windows, insulation, heat pump, air conditioner or furnace, with an annual and lifetime cap of $500.  The credit expired at the end of 2021.

 

The act modifies section 25C as follows:

1. the credit percentage is increased to 30%

2. the credit is extended to 2032.

3. The lifetime cap is removed.

4. There is an annual cap of $1200, with individual caps of $600 for windows, $500 for doors, and $600 for energy efficient "property" (which generally includes furnaces, hot water heaters and air conditioners.

5. Regardless of the $1200 annual cap and $600 cap for "property", there is a separate $2000 cap for a heat pump, heat pump hot water heater, or biomass stoves and boilers.

6. The definition for efficiency for a heat pump to qualify has been changed to 

"which meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year in which the property is placed in service."

 

There are a number of other changes that are not relavant to your question. 

 

[Edited to correct]

So to your question, installation of a qualified heat pump in 2022 is eligible for a credit of 30% of the cost (including installation), up to a maximum of $2000, assuming it meets the required efficiency standard. 

The law specifies that the changes take effect in 2023.  Property placed in service in 2022 only receives a 10% credit with a lifetime cap of $500.  The enhanced 30% credit and higher caps take effect for property placed in service after December 31, 2022. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Yoyoguy
Level 2

Heat pump: Inflation reduction act

Thanks @Opus 17 Can you help me understand what this "December 31, 2022" about though?


Page 350 says, 
(1) IN GENERAL.—Except as otherwise provided by this subsection, the amendments made by this section shall apply to property placed in service after December 31, 2022. 

 

 

Opus 17
Level 15

Heat pump: Inflation reduction act

@Yoyoguy 

It’s very difficult because you have to read the entire section of the act from page 338 through 351 and you have to cross reference back to the current law section 25C.

 

After the sentence you quoted, it also says this:

EXTENSION OF CREDIT.—The amendments made by subsection (a) shall apply to property placed in service after December 31, 2021.


Section a is the extension of the expiration date only.  So the combination of the two statements seems to indicate to me, that the credit is extended as is (10% and $500 lifetime maximum)  retroactive to January 1, 2022. However, the enhanced credit of 30% with a $1200 (or $2000) annual limit is effective on January 1, 2023.

 

This is actually pretty sensible, because it gives people and the IRS time to plan, and reverse is a trend of Congress making huge changes to the tax laws retroactively. However, if I read it correctly, you will want to hold off installing a new heat pump until next year, if you can.

 

I am not a tax attorney, and you should wait for more authoritative explanations.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Yoyoguy
Level 2

Heat pump: Inflation reduction act

Ok.. Can you clarify whether solar installation is 30% or 26% for Jan 1, 2022 to Dec 31, 2022?

Opus 17
Level 15

Heat pump: Inflation reduction act

@Yoyoguy 

That would be in section 25D. I’m not at my computer, so I can’t at the moment research whether the “inflation reduction act“ also changed section 25D.  Maybe later tonight.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Opus 17
Level 15

Heat pump: Inflation reduction act


@Yoyoguy wrote:

Ok.. Can you clarify whether solar installation is 30% or 26% for Jan 1, 2022 to Dec 31, 2022?


30%. See here,

https://ttlc.intuit.com/community/tax-law-changes/discussion/revisions-to-section-25d-residential-cl...

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Ben202
Returning Member

Heat pump: Inflation reduction act

Thank you @Opus 17 !
I have a followup question -

If the installation of a heat pump cost me $10,000 this year (2022), could I claim $2000 in credits this year (2022's returns) and an additional $1000 next year (2023's returns)? 

Opus 17
Level 15

Heat pump: Inflation reduction act

@Ben202 

The new credit limits take effect in 2023.  For property placed in service in 2022, the credit for a heat pump is 10% with a cap of $300 and a lifetime cap on all credits under that section of $500.  

Also, the credit can only be claimed in the year the property is placed in service.  If the property is placed in service in 2022, you can only claim the 2022 credit.  You can’t also claim a share of the larger credit in 2023.   

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
MaxGhenis
Returning Member

Heat pump: Inflation reduction act

Yep, specifically page 350 of the IRA says:

(1) IN GENERAL.—Except as otherwise provided by this subsection, the amendments made by this section shall apply to property placed in service after December 31, 2022.

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