It’s February already, which means April 15th is just around the corner. Don’t forget to claim the upgrades you made last year when you file your 2023 tax return! If you made energy efficiency upgrades like installing insulation or a heat pump, you are very likely eligible for tax credits (a reduction in your tax bill). Following are some helpful tips for making the most of the IRA’s energy efficiency tax credits, but please consult with your tax professional for details.
Make a game plan for the yearly total tax credit limits
The IRA 25C and 25D Tax Credits allow households to get credits for up to 30% of the cost of upgrades to their homes, including the equipment and installation costs. The home must be located in the US and must be used as a residence by the taxpayer.
Qualifying upgrades each have a maximum allowable yearly credit. And to make things more interesting, each group of items, below, has a separate total allowable credit limit. It’s possible to utilize the maximum on each group of items for costs incurred each year.
- Group 1—Maximum yearly credit limit: $1,200
- Energy Audit: 30% of cost; $150 cap
- Electric Panel: 30% of cost; $600 cap
- Exterior Doors: 30% of cost; $500 cap
- Exterior Windows: 30% of cost; $600 cap
- Insulation: 30% of cost; $1,200 cap
- Group 2—Maximum yearly credit limit: $2,000
- Heat Pump Water Heater: 30% of cost; $2,000 cap
- Heat Pump AC/Heater: 30% of cost; $2,000 cap
- Group 3—Maximum yearly credit limit: 30% of cost with no limit
- Rooftop Solar: 30% of cost
- Battery Storage: 30% of cost
- Geothermal Heating: 30% of cost
One example: If you pay $300 for a home energy audit, you’d earn a $100 tax credit (30%). If you pay $450 or more, you’d earn a $150 credit (30%, capped at $150).
Note: For several of these upgrades, incentives are also available from the Energy Trust of Oregon (ETO). Assuming those incentives go to your subcontractor, you’ll subtract them from your project cost before calculating your 30% federal tax credit.
Starting in 2023, the tax credits have an annual limit rather than a lifetime limit so, if you can manage to spread out your qualifying home improvements over several years, you can maximize your savings. The potential $3,200 tax credit from the IRA (for groups 1 and 2 above) renews annually, so you can get back up to $3,200 in 2023, $3,200 in 2024, and so on. One example for how to plan your energy upgrades would be: In year one, you might upgrade your electrical panel and install a heat pump, and then in year two upgrade your insulation and windows and put in a heat pump water heater, putting yourself in a better position to claim the max in both groups for each year.
If you made energy efficiency upgrades to your home in 2023, you’ll want to be sure to claim them on your federal tax return using Form 5695. The contractor who installed your efficiency upgrades should also be a helpful resource for getting the necessary paperwork ready for tax time. Again, we recommend consulting with your tax professional for details. The actual credits available to you will depend on household income. Go to rewiringamerica.org to find a useful on-line calculator to help you estimate the tax credits available to you, based on your income level.
If you have questions, you may find the answers in this FAQ sheet from the IRS.
Keep an eye on ever-changing EV Tax Credits
If you bought an EV in 2023, that’s awesome! The eligibility for the IRA’s EV Tax Credits changed last year, so check out fueleconomy.gov to see if your EV qualifies. Here’s a quick overview of the available EV Tax Credits:
25E Used EV Tax Credit is a 30% tax credit up to $4,000 for used electric vehicles, dependent on MSRP and income limits. Starting in 2024, this credit can be transferred to dealerships in exchange for a point-of-sale discount right off the top.
30D New EV Tax Credit is a $7,500 tax credit for new electric vehicles, dependent on MSRP and income limits. Starting in 2023, the credit will also be subject to geographic manufacturing requirements that restricts the list of eligible models. Starting in 2024, this credit can be transferred to dealerships in exchange for a point-of-sale discount right off the top.
30C EV Charging Tax Credit is a capped 30 percent tax credit for installing home electric vehicle chargers. Starting in 2023, the credit will be limited to households in low- income or rural communities.