The Internal Revenue Service released a set of
The inflation Reduction Act of 2022, which Congress passed in August, amended the tax credits for energy efficient home improvements and residential energy property, in line with the Biden administration's goal of incentivizing renewable energy development. The FAQs released Thursday by the IRS spell out more details on the law's changes to these tax credits along with information on eligible expenditures. The document also includes several examples of how the tax credit limitations work.
Among the changes, the Energy Efficient Home Improvement Credit has been a $500 lifetime credit through the end of this year. But under the IRA, the credit increased for years after 2022, with an annual credit generally up to $1,200, the IRS noted. Starting Jan. 1, 2023, the amount of the credit will be equal to 30% of the sum of amounts paid by the taxpayer for certain qualified expenditures, including:
- Qualified energy efficiency improvements installed during the year;
- Residential energy property expenditures during the year; and,
- Home energy audits during the year.
There will be limits, however, on the allowable annual credit and on the amount of credit for certain types of qualified expenditures. The credit is allowed for qualifying property placed in service on or after Jan. 1, 2023, and before Jan. 1, 2033.
The Residential Clean Energy Property Credit is a 30% credit for certain qualified expenditures made by a taxpayer for residential energy efficient property. The Inflation Reduction Act extended the credit through 2034, modified the applicable credit percentage rates, and added battery storage technology as an eligible expenditure, according to the IRS. The credit applies for property placed in service after Dec. 31, 2021, and before Jan. 1, 2033. The credit percentage rate phases down to 26% for property placed in service in 2033, 22% for property placed in service in 2034, and no credit is available for property placed in service after Dec. 31, 2034.
Among other questions, the document explains which home improvements are eligible for the Energy Efficient Home Improvement Credit and the Residential Clean Energy Property Credit and for what dollar limits. It also explains other details, such as whether roofing expenditures that are necessary for the installation of solar panels are eligible for the Residential Clean Energy Property Credit, and whether credits are available for improvements made to a second home or to a home rented by the taxpayer.
