Inflation Reduction Act (IRA) and Combating Climate Change
On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) into law. The new bill marks the largest investment in combating climate change in U.S. history. While the legislation primarily helps businesses adopt eco-friendly and clean energy measures, for individual consumers, the IRA has extended and modified the energy credit.
What does this mean for you?
Well, if you’re planning a few home improvements that will boost the energy efficiency of your house, it would be in your best interest to hold off until 2023 to make those upgrades. The below table highlights a few of the key changes that were made to the credit, and you’ll notice there are significant increases.
Prior to the Inflation Reduction Act, the credit had a lifetime limit of $500. However, under the new act, there is an annual, rather than lifetime, limit on the credit and there is no income limit for this credit. Therefore, if you spread out your qualifying home projects, you can claim the maximum credit each year.
While not all improvements are covered under this credit, a good resource to use is:
This will tell you what items are covered, the credit percentage allowed, as well as the maximum amount for each type of property, etc. For property placed in service after December 31, 2024, manufacturers must enter into an agreement with the Treasury Department and will issue a product identification number that must be included with the taxpayer’s return to claim a credit for certain specified property. Please note that with the new law, qualified energy efficiency improvements no longer include roofs.
Please also note that the “Pre-IRA Law” items will apply for the remainder of 2022 and that the above changes do not go into effect until January 1, 2023. If you’re able to hold off on making energy efficient improvements until 2023, the tax credits can be very lucrative! Feel free to reach out to our team if you have any questions at info@holsinger.com.
