Energy Efficient Improvements to Save Money at Tax-Time

Going green can make your home more energy efficient, and certain tax credits can also help you save money at tax time.

Before we get into specifics, one positive thing to note for your taxes is that these tax benefits are credits, so unlike deductions, they reduce the taxes you owe dollar-for-dollar.     

Clean Vehicle Credit 

Not only can you save money by not having to purchase gas with your electric car, but the Clean Vehicle Credit is a dollar-for-dollar credit that can reduce taxes you may owe and potentially lower your taxes owed by $7,500. 

Under the Inflation Reduction Act, people who purchased new electric vehicles are eligible for a tax credit up to $7,500. Also, starting January 1, 2023, people who purchase used electric vehicles for $25,000 or less may be eligible for a credit of 30% of the sale price up to $4,000,  depending on their income.
Most of the changes to electric vehicle credits under the Inflation Reduction Act are effective with electric vehicles purchased starting January 1, 2023. There are income, manufacturer sales price, and final assembly requirements for both new and used electric vehicles.

Credit for Electric Chargers Installed at Your Home or Business

If you equipped your home or business with electric chargers, you may be eligible for the Alternative Fuel Vehicle Refueling Property Credit to reduce your tax liability.

As of January 1, 2023, the credit for qualified refueling property subject to depreciation equals 6% with a maximum credit of $100,000 for each single item. If a business meets certain wage and apprenticeship requirements, they may be eligible for a 30% credit with the same $100,000 limit. 

For qualifying property not subject to depreciation, you could be eligible for a credit of 30% of the cost for a maximum amount of $1,000 per item. 

For property placed in service before January 1, 2023, the credit is 30% of the cost of qualified refueling property with a maximum total credit of $30,000 per location for depreciable property and $1,000 per location for all other property.

Residential Clean Energy Credit

The Residential Clean Energy Credit is available if you make energy saving improvements to your home and offers a credit worth up to 30% on purchases of energy efficient equipment from January 1, 2022, through December 31, 2032. The improvements could include amounts spent on battery storage, fuel cells, solar hot water heaters, solar power (the photovoltaic panels you are starting to see on roofs) and wind turbines. 

If the credit is more than your total tax bill for the entire year, the remainder of the credit can be carried forward to next year as it is not a refundable credit.  The installation of these systems must be in the US and in your main home or in a second home that is used as your residence. 

Each state has its own rebates which help to reduce your cost. Check out the Database of State Incentives for Renewables & Efficiency to see what your state offers. With the cost of electricity rising, and the cost of solar panels continuing to fall, it makes sense to see if this is a wise purchase for your house. The tax credit may tip the math to favor going solar or simply make a good deal better.

Home Energy Audits 

A home energy audit is a written report used to identify potential cost-effective energy improvements for your home. The credit amount is equal to 30% of the total amount paid during the year for a home energy audit. The maximum credit that can be claimed for home energy audits is $150 (30% credit on audits that cost up to $500). This credit is non-refundable, which means that it will reduce the amount you owe to the IRS down to zero, but any remaining credit won’t be refunded to you. 

Some things to note about your home energy audit: 

• Must include an estimate of the energy and cost saving each improvement would provide
• Should be performed by a qualified home energy auditor and state in the written audit report that the auditor is certified to conduct home energy audits 
• The report must provide the auditor’s name, the auditor’s employer identificaton number or other taxpayer identification number, and the name of the qualified certification program of the auditor. It must also be signed by the auditor.

Non-Business Energy Property Credit (Energy Efficient Home Improvement Credit)

Prior to the Inflation Reduction Act, the Non-Business Energy Property Credit, which has now been renamed the Energy Efficient Home Improvement Credit, was worth 30% of the cost and gave taxpayers up to a $500 lifetime limit on qualified energy efficient items installed in their homes, like qualified insulation, windows, doors, and roofs, through December 31, 2022. 

As a result of the Inflation Reduction Act, the credit is now worth up to $1,200 per year for a qualifying property placed in service on or after January 1, 2023 and before January 1, 2033. Since the credit now has an annual limit rather than a lifetime limit, you could spread your home improvements over the current 10-year life of the credit and receive $12,000 in tax benefits over the course of the 10-year period. 

If you make qualified investments in heat pumps and biomass stoves and boilers, you could also receive up to an additional $2,000 per year. This means you could qualify for a tax credit of up to $3,200 per year. However, this credit is nonrefundable, which means you can’t get back more on the credit than you owe in taxes. 

Do the math and see if going ‘green’ is not just good for the planet, but for your wallet, too.

No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed.