You may have heard that the Inflation Reduction Act signed into law by President Biden in 2022 makes a huge investment in clean energy, but if you haven’t dug into it, you may not be aware of the big tax credits in there for homeowners. The new law incentivizes clean energy home upgrades by creating substantial tax credits for homeowners who decide to install energy efficient windows, new energy efficient water heaters, solar panels and a long list of other upgrades. Since tax credits are a dollar for dollar reduction of your tax bill, this will substantially bring down the cost of making these improvements, so now may be a great time to install costly solar panels, or move forward with other projects you may have been considering.
Up until January of this year, the maximum lifetime credit for energy efficient home improvements was $500, but under the new law, you can qualify for a credit of $1,200 each year. The new credit is equal to 30% of the cost up to certain limits, so for example, if you installed new exterior windows or skylights, you could get a credit of 30% of costs, up to a maximum of $600. If you spent $2,200 on windows, 30% of that amount is $660, but your credit is limited to $600. You could still qualify for another $600 in credit for some other upgrade on the list, like an electric water heater, up to the maximum credit of $1,200, but even in the example of the windows, you can see this creates substantial cost savings. You can claim the $1,200 credit each year, so you could consider making a few changes every year to really get the most out of the the credit.
There are actually two different credits in the new law: The Energy Efficient Home Improvement Credit, and the Residential Clean Energy Property Credit. The Energy Efficient home improvement credit is for doors, windows, insulation, HVAC, water heaters, heat pumps, electrical panels and several other items, and is limited to $1,200 per year. However the Residential Clean Energy Property Credit is an unlimited credit you can get for up to 30% of the cost of things like solar panels, solar water heaters, geothermal heat pumps, battery storage tech and fuel cell expenditures. That means that if you spend $10,000 on a solar panel system, you get a tax credit for $3,000, lowering your net expenditure to $7,000!
You can also get a credit of up to $150 for a Home Energy Audit, where a Certified Home Energy Auditor goes through your home and identifies the most significant and cost-effective energy efficiency improvements for that dwelling, including an estimate of the energy and cost savings for each such improvement.
So if warm air leaking out of your old louvered windows is putting a dent in your heating bills, consider trading them out for lovely, efficient, double paned windows that seal perfectly, and keep your home cleaner and quieter too. Or take the plunge and invest in a solar panel array to not only take advantage of the cost savings, but enable you to gloat to your friends about your non existent electrical bills!
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