The federal government has been busy during the last months of 2022. The Inflation Reduction Act of 2022 and the Secure Act of 2022 both have laws that will affect your 2022 federal income taxes.
Residential Energy Tax Credits
In August, 2022, the Inflation Reduction Act of 2022 amended the tax credits for Energy Efficient Home Improvement and Residential Energy Property tax credits. The prior laws under the Residential Energy Credits were in affect from 2006 through December 31, 2022. It had a maximum lifetime credit of $500. The Clean Energy Credit was 26% of the costs.
The new law extended the credits through December 31, 2034. It increased just the Residential Energy Efficient Property Credit for 2022 and beyond to 30% the cost to buy and install solar panels, solar water heaters, small wind systems, geothermal heat pumps, biomass fuel property and fuel cell property. The New Energy Efficient Home Improvement Credits will take affect January 1, 2023. The credit is generally increased to $1,200.00 maximum credit annually. The amount of the credit is equal to 30% of the sum amounts paid by the taxpayer for certain qualified expenditures, including for:
• Qualified energy efficiency improvements installed
• Home energy audits done by certified third party
The credits are available to the taxpayer for improvements made to their principal residence, the taxpayer's second home and maybe available to the taxpayer's (tenant) rental home as long as it is their principal residence. Not newly constructed homes. The Efficient Home Improvement Credits that qualify are:
Exterior doors, windows and skylights; insulation materials or systems; home energy audits by a certified third party; central air conditioners; natural gas, propane or oil water heater, furnaces and boilers; improvement or replacement of panel boards, sub-panel boards, branch circuits or feeders related to energy property; heat pump water heaters, heat pumps and biomass stoves and boilers. These credits each have a maximum limit and are part of the annual total of $1,200.
The Residential Clean Energy Property Credit of 30% of the cost if they were installed during 2022 through 2034 are the following items:
Solar electric (solar panels); solar water heating (solar water heaters); fuel cell property; small wind energy property; geothermal heat pump property and battery storage technology. There is no limit on the amount of the credit except for fuel cells. These credits are available on existing homes or newly constructed homes.
All the Energy Efficient Home Improvement and Residential Clean Energy Property credits are NON-REFUNDABLE tax credit. The Energy Efficient Home Improvement tax credit can NOT be carried forward to future tax years. If the taxpayer does not have sufficient tax liability to claim all or any of the tax credits, the unused portion of the credit may never be claimed. The Residential Clean Property credits may carry forward to future tax years to reduce tax liability.
So, if you installed any of the Residential Clean Energy Property in 2022, your credit is increased to the 30% on your 2022 tax return. All other credits begin January 1, 2023, so plan those improvement projects for this year - 2023.