Energy tax credit 2023: how to take a break on an electric vehicle, heat pump...

On January 1, Americans became eligible to save thousands of dollars buying electric cars, induction cookers and modern appliances under the Inflation Reduction Act that Democrats passed last fall.

Most American homes still use fossil fuels, especially natural gas, for heating, cooking and hot water. To meet the Biden administration’s goal of halving the climate footprint of buildings by 2032, many of these homes will need to be electrified. Replacing the gas stove with induction and a natural gas furnace with an electric heat pump allows the building to be better connected to the electrical network. Today, this grid could still be powered by coal and gas, but in a few years it will run mostly on clean energy like wind and solar. Home electrification is now essential to reducing carbon pollution in the United States in the decades to come.

Much of the $369 billion in the new law for climate initiatives are rebates and tax credits aimed at helping consumers switch from fossil fuels to electricity. While the IRA also includes large payments for utilities and manufacturers to spur a cleaner national economy, the consumer incentives address a different set of issues – rising energy bills and combats the most stubborn sources of greenhouse gas pollution.

There is money for a solar roof; electric vehicles, dryers, stoves and ovens; heat pumps for heating, cooling and hot water; electrical panels and wiring. The law also includes programs that cover the costs of insulation and weatherization to reduce a building’s energy consumption.

Not everyone will need to replace their furnace, car or cooker in 2023. But even if you don’t plan to do so or don’t own your own home, the IRA’s incentives can add up. apply, and it’s important to start thinking about it early to take full advantage of it.

Home renovations are a big and difficult investment at the right time. Worst case scenario is to end up with a system down and for a long time waiting time for a contractor, not to mention one that is up to date on the best technology available. That’s why if you’re setting a goal for 2023, it should be to assess what you have and what you’ll need.

“Accept the idea that electrification is what we all need to do eventually,” said Craig Aaker of Green Savers, an Oregon-based home performance contractor. There’s no point in upgrading a furnace unless it’s upgraded to a heat pump, he added: “At this point, I definitely wouldn’t spend money on fixing a furnace if it’s gone bad.” turned off. Just take that money and turn it into an investment.

The best place to start is with an energy audit, which identifies where your home is inefficient, issues like drafty windows, and fixes that could lower energy costs and make you more comfortable. A professional will cost around $150 (although the Department of Energy has a guide for a DIY option). Not all of the suggestions are expensive upgrades, and they likely fall into one of the categories of improvements eligible for tax breaks.

“The good thing about the Cut Inflation Act is that it effectively creates an electric bank account for every American household that they can access when the time is right,” said Ari Matusiak, CEO of the advocacy group Rewiring America electrification.

Some of the tax credits available in 2023

There are two main categories of incentives available: tax credits that can be redeemed when you file your taxes the following year, and rebates that reduce the initial cost of plant and machinery.

The tax credits will last until 2032 with no cap on their cost, unless dramatically reversed by a future Congress. Some funds for rebates are reserved for low- and middle-income people, those earning between 80 and 150 percent of an area’s median income, and have a spending cap, so the law can run out of money before the end of 10 years. . .

Some discounts may not come into effect until later in 2023, because states must set up their own programs and guidance for those who qualify. For low-income people earning less than 80% of a region’s income, the rebates will ultimately cover most if not all of the technology and facility costs. Middle-income people, earning between 80 and 150% of an area’s income, would see some of the costs covered. Discounts will be an initial discount offered on sale.

More information on refunds is coming in 2023. For now, tax credits are available, and it can be a bit complicated. Some are capped based on cost and income levels or, like 25C tax credits, apply to multiple categories.

If you want to dig deeper into these tax breaks, Rewiring America has a helpful guide, and the White House has a dedicated website at the unboxing of the IRA. The other page to bookmark is the IRS advicewhich will be updated throughout the year.

Here are some of the technologies you may want to consider upgrading or replacing, taking advantage of the tax credits available on January 1 through the IRA:

Breaker box

The electrical panel, or circuit breaker box, is the basis for the electricity that flows through your home. Panel size matters if you plan on adding tons of new plug-in devices, as older homes may have a much smaller capacity.

Tax credits cover 30% of the panel upgrade, capped at $600 reset each year (this is not capped if combined with a rooftop solar installation).

Solar on the roof

In the long run, rooftop solar can reduce utility bills by hundreds of dollars each year and be a backup source of electricity during a storm when combined with battery storage. It is also electricity that does not contribute to the climate crisis.

The tax credit would cover 30% of the cost of installing a solar roof. Rewiring America estimates that the average 6 kW rooftop solar installation costs about $19,000, so the average tax credit would be about $4,700.

Heat pumps for heating, air conditioning and water heaters

Heat pumps are up to four times More efficient than the best gas furnaces because they essentially redirect cold air from one area to another. The technology is relatively unknown in the United States compared to Europe, but it is gaining ground.

There are different types of heat pumps, which are particularly useful if you currently use gas for your clothes dryer, air conditioning, heating or hot water.

The tax credit covers 30% of the cost of air and water heat pumps, capped at $2,000 per year, but is reset each year so it can be used for other projects.

Aaker of Green Savers explained that it’s also worth considering what you already have for water heating. “If you have natural gas or an electric resistance water heater, which are the two most common types, you can save real money. The thing we sell that has the highest return on investment is heat pump water heaters. »

Weatherization and insulation

By sealing doors and windows and adding insulation, a home could be much more comfortable to live in and require less money to heat and cool. The first step in determining the needs of a space is to have an energy audit carried out by a professional, who will assess which types of insulation and sealing will be most useful. The IRA offers a 30% tax credit for an energy audit and on upgrades for insulation, doors and windows.

Residential battery system

Battery storage can help power home devices even during a major power outage. The tax credit for this is uncapped, offering 30% back on battery storage. The average cost is $16,000, so the average loan pays around $4,800.

Electric vehicles

There are two relevant tax credits for new and used electric vehicles, each with different revenue limits and price caps. The way it works for new vehicles is that if you make less than $150,000, $225,000 as a householder, or $300,000 for joint filers, you could get up to $7,500 off. Cars must cost less than a certain retail price to qualify: for vans and pickup trucks, it’s $80,000; for other cars, it’s $55,000. The IRS has a initial list qualified cars here, and the answers common questions on new loans.

For used vehicles, the income limit is $150,000 for joint filers, $112,500 for the head of household and $75,000 for all other filers. Cars must cost less than $25,000 to qualify.

In 2024, these credits will transform into initial rebates granted by dealers at the point of sale.

Additional discounts available later in 2023

There will be more discounts available for all of the above categories, aimed at low and moderate income levels, later in 2023. There are also additional categories that will be eligible for discounts, including induction cookers, ovens and dryers.

Correction, January 3, 11:30 a.m. ET: An earlier version of this story missed the restrictions in place for the new electric vehicle tax credits.

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