This year, tax incentives aimed at helping U.S. residents improve housing efficiency, invest in clean energy, and purchase electric vehicles have come to an end. So, if you’re looking to benefit from them, time is of the essence.
“We still have time, but the clock is ticking,” said Zach Pierce, a policy director at Rewiring America, a nonprofit centered on electrification.
If you’re looking to make the most of your savings, there are a couple of strategies to consider. You know, things that could potentially save you thousands of dollars if acted upon soon.
What exactly are these incentives?
The Inflation Reduction Act, passed in 2022, introduced numerous tax credits for electric vehicle purchases and housing improvements.
The main objectives? Well, they aim to cut down greenhouse gas emissions, which are the main contributors to climate change, and they encourage the adoption of cleaner options like heat pumps and electric cars.
Besides electric vehicles, qualified home upgrades cover everything from energy audits, heat pumps, and solar panels to water heaters, appliances, battery storage, car chargers, windows, insulation, and more.
Now, the credits work in this way: say you buy a heat pump and qualify for a $2,000 tax credit. You can report those expenses on your tax return, effectively lowering your tax bill by that amount.
However, don’t forget that some incentives have limits. For instance, while you can get $1,200 a year for most home improvements like insulation and energy-efficient windows, the $2,000 credits for heat pumps and water heaters are also capped at that amount. But larger expenses like geothermal heat pumps or solar installations have no caps, meaning you’d get a credit of 30% of the purchase price. So, if you invest in a $20,000 rooftop solar system, you’re looking at a $6,000 tax credit.
Initially, these credits were meant to last until around 2032 to 2034, but due to recent budget changes, they will expire much sooner.
When do they expire?
Most of these credits expire at the end of this year, though a couple of exceptions exist.
For instance, a clean vehicle tax credit for new electric vehicles is worth $7,500, while used ones offer up to $4,000.
Pierce urges that the deadline is approaching quickly, encouraging anyone interested in purchasing qualified new vehicles to act immediately.
Olivia Alves, a senior associate at RMI, points out that some tax credits are also available upfront—”We use a clean vehicle tax credit that can be applied through the dealer at the time of purchase, essentially functioning like a point-of-sale rebate,” she stated.
It’s important to note that your car doesn’t have to be parked in your driveway by the deadline. Simply entering a contract, paying a deposit, or trading in can qualify you.
Credits for EV chargers, which can be up to $1,000, will remain valid until June 30 of the next year, but most others will expire on December 31.
If I’m focusing on home improvements, where should I start?
Alves suggests beginning with a home energy evaluation. “It’s fundamental for these retrofits,” she explained, noting that professionals can help you identify the best projects.
Next, think about solar panel installations, if they’re on your agenda. However, keep in mind some solar businesses are already booked solid for the year.
“There’s a greater backlog with rooftop solar compared to heat pumps,” Pierce mentioned, adding that installations can take anywhere from 16 to 90 days, which might feel tight.
Then, Alves advises tackling smaller installations like doors and insulation, saving larger appliances like heat pumps for last due to their higher costs and longer installation times, but without the same supply chain issues as solar.
What if my tax credit is more than what I owe?
If your tax credit exceeds your tax liability from home efficiency upgrades, you cannot roll that unused credit over to future years.
However, you could carry over credits for residential clean energy projects, like solar or geothermal installations, if you can’t make full use of the incentives in one year.
Due to the accelerated expiration dates, it’s wise to consult a tax advisor for clarity.
