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Energy Tax Credits Available for 2023 Thumbnail

Energy Tax Credits Available for 2023

Tax

By: Lisa Wood, CPA, MT  - Director of Tax

Have you made energy improvements to your home?  Did you purchase an Electric Vehicle?  If so, tax credits are available!  The Inflation Reduction Act of 2022 increased the residential credit amounts and the types of expenses that qualify.  It also imposed additional restrictions on credits for Electric Vehicles and created a new credit for the purchase of used electric vehicles.  These credits are all nonrefundable, which means your tax liability must be high enough to benefit from the credit.  In addition, financial incentives, including subsidies and rebates, may need to be subtracted from your cost when calculating the credits. 

Energy Efficient Home Improvement Credit

You may claim this credit for improvements to your main home located in the United States.  The home must be your primary residence and an existing home (not a new home).  The credit is available for improvements made in 2023 through 2032 that are reasonably expected to be used for at least five years.  The credit is 30% of qualified expenses subject to annual limits.  

The maximum credit is $2,000 per year for qualified heat pumps, heat pump water heaters, and biomass stoves and boilers.  The thermal efficiency rating must be a minimum of 75% as measured by the higher heating value of the fuel.  

The maximum credit is $1,200 per year for energy property costs and energy efficient home improvements with lower limits on doors, windows, and home energy audits.  The home improvements must be new systems and meet energy efficiency standards.  Property qualifying for the credit includes:

  • Exterior doors that meet Energy Star requirements (credit limit $200 per door and $500 total)
  • Exterior windows and skylights that meet Energy Star most Efficient certification requirements (credit limit $600 total)
  • Insulation and air sealing materials or systems that meet International Energy Conservation Code standards
  • Home energy audits (credit limit $150)
  • Residential energy property that meets the highest tier of Consortium for Energy Efficiency (credit limit $600 per item) including:
    • Central air conditioners
    • Natural gas, propane, or oil water heaters
    • Natural gas, propane, or oil furnaces and hot water boilers

Residential Clean Energy Credit

You may claim this credit for improvements to your main home located in the United States if you own or rent it.  The home may be an existing home or a newly constructed home.  You may also be able to claim this credit for improvements to a second home that you live in part-time, provided it is not rented to others.  The credit is 30% of the costs of new, qualified clean energy property and is not subject to a limit (other than fuel cell property).

Property qualifying for the credit includes:

  • Solar water heaters certified by the Solar Rating Certification Corporation
  • Solar electric panels
  • Geothermal heat pumps that meet Energy Star requirements
  • Wind turbines
  • Fuel cells (limited to $500 for each half kilowatt of capacity)
  • Battery storage technology with capacity of at least 3 kilowatt hours

Both the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit are claimed by filing Form 5695 Residential Energy Credits Part II with your annual tax return.  Credits are available for the tax year the property is installed.

New Clean Vehicle Credit

You may qualify for up to a $7,500 credit if you purchase a new electric vehicle (EV) for your own use primarily in the U.S.  

To qualify for the credit, your modified adjusted gross income (MAGI) must be below $300,000 for married couples filing jointly ($225,000 for Head of Household and $150,000 for all other filing statuses).  You are permitted to use MAGI for the year of delivery or the year before if it is less.

The vehicle’s manufacturer suggested retail price cannot exceed $80,000 for vans, sport utility vehicles and pickup trucks or $55,000 for all other vehicles.  In addition, the vehicle must meet the following requirements:

  • Battery capacity at least 7 kilowatt hours
  • Gross vehicle weight less than 14,000 pounds
  • Final assembly occurs in North America
  • Meets critical mineral and battery component requirements

This credit is divided into two parts - $3,750 is available if the EV meets the critical minerals requirements and $3,750 is available if the vehicle meets the battery components requirement.  Here is a link to determine which vehicles may qualify for which portions of the credit: https://fueleconomy.gov/feg/tax2023.shtml

Used Clean Vehicle Credit

You may qualify for a credit if you buy a used EV for $25,000 or less for your own use primarily in the U.S.  The credit is calculated as 30% of the sale price and is limited to $4,000.

To qualify for the credit, your modified adjusted gross income (MAGI) must be below $150,000 for married couples filing jointly ($112,500 for Head of Household and $75,000 for all other filing statuses).  You are permitted to use MAGI for the year of delivery or the year before if it is less.

The sales price of the EV must be $25,000 or less and have a model year at least 2 years earlier than the calendar year of purchase.  The following requirements must be met:

  • Battery capacity at least 7 kilowatt hours
  • Gross vehicle weight less than 14,000 pounds
  • Purchased from a licensed dealer.
  • The dealer reports certain required information to you and the IRS at the time of sale.

Please contact us if you have questions about your specific situation with any of these credits.