Lately, all you hear about on the news is the rising costs of goods and services. As inflation continues to drive prices up, Americans are spending more on everything, from healthcare to energy costs. But a 2023 law is expected to bring savings to many Americans and provide a more stable economy. The Inflation Reduction Act (IRA) will significantly impact families, seniors, and small business owners in New Jersey and across the US. With expanded tax credits and additional IRS funding, this new law could affect your tax returns this year and in the future.
Here are a few ways you can expect the IRA to help you.
1. The Energy Efficient Home Improvement Credit
The IRA provides many financial incentives for individuals to invest in environmentally friendly technology to save on energy expenses. The bill has extended the Nonbusiness Energy Property Credit through 2032 and renamed it the Energy Efficient Home Improvement Credit. Starting this year, the credit will refund up to 30% of the costs associated with eligible home improvements.
The total credit amount includes a $1,200.00 annual refund limit, broken down as follows:
- Up to $150 for in-home energy audits
- Up to $250 for installation of exterior doors
- Up to $600 for installation of exterior windows or skylights
- An additional $600 maximum for other qualified energy technology, including air conditioners, electric panels, heaters, furnaces, boilers, and more.
- Up to $2,000 for heat pump water heaters, stoves, and boilers. This credit is the only category not limited by the $1,200 limit.
It is important to note that all upgrades must be Energy Star compliant.
2. Residential Clean Energy Credit
The Residential Energy Efficient Property Credit was set to expire in 2023, but it has been extended to 2034 and expanded as the Residential Clean Energy Credit. This credit is available for homeowners who purchase and install residential solar, small-scale wind, or geothermal heat technology equipment. It also covers home battery storage and fuel cell energy systems. The amount of credit you are eligible for will be determined with a phase-out system:
- A credit of 30% of expenses for 2023-2032
- A credit of 26% of expenses for 2033
- A credit of 22% of expenses for 2034
3. Clean Vehicle Credits
The IRA has extended the Clean Vehicle Credit to the end of 2032. This credit now includes previously-owned clean vehicles and some clean commercial vehicles. Tax credits include:
- Up to $7,500 on the purchase of eligible new commercial clean vehicles
- Up to $40,000 on the purchase of clean vehicles over 14,000 pounds
- Either 30% of the cost for a used clean vehicle OR $4,000, whichever is less
As of 2024, car dealers will be able to transfer the credit at the point of sale, allowing dealers to reduce the purchase price of cars directly.
Not only are these significant tax credits more money back in your pocket, but the incentives to utilize new, energy-efficient technology can also save you on energy costs over the long run. These tax credits can help you reduce the up-front cost of these upgrades while saving you thousands in the long run on heating, cooling, and travel costs. Investment in this technology can protect your household against future spikes in energy costs and inflation.