Want to Go Green? How the Inflation Reduction Act Could Help
President Biden’s Inflation Reduction Act includes numerous tax benefits to help curb greenhouse gas emissions. If you’re in the market for solar panels (or other home upgrades) or an electric vehicle, read this blog to see how the Inflation Reduction Act might help you.
One note, though: Many rules are still being worked out, and timelines are staggered. Take this article as a starting point. For the latest updates, check out the White House’s CleanEnergy.gov website.
Your Home
The new rules provide tax breaks for energy-efficient upgrades:
A 30% tax credit for installing renewable-energy items, such as solar panels: You can get this credit retroactively to the beginning of 2022. The 30% credit extends to 2023 and then falls to 26% in 2033 and 22% in 2034.
An annual tax deduction for installing certain energy-efficient items: You can receive a $2,000 deduction for an electric heat pump. Otherwise, the deduction is capped at $1,200 for energy-efficient water heaters, electric panel upgrades, exterior doors and windows, etc. You have until 2033 for most items, but not all. Head over to the CleanEnergy.gov webpage for details.
You can also receive two point-of-sale rebates in participating states. The time frame is still being worked out, though they’ll likely be offered in late 2023:
HOMES program: You can get up to $4,000 in rebates ($8,000 for middle- and low-income households) for reducing energy consumption through such improvements as insulation.
High-efficiency electric home rebate program: This program offers up to $14,000 in rebates for purchases of energy-efficient upgrades and appliances like clothes dryers. This program is open to households earning less than 150% of the local area’s median income.
Electric Vehicles
The Inflation Reduction Act provides tax credits for new and used “clean vehicles” like plug-in hybrids and electric vehicles. You can receive a tax credit up to:
$4,000 for a used vehicle
$7,500 for a new vehicle
However, your purchase date is important. For new cars:
2022: The credit is only available to vehicles assembled in North America. Plus, you can’t get a tax credit for a Tesla or GM vehicle because purchases of those cars have already hit the limit under an existing tax break (this no longer applies in 2023).
2023 onward: Your car must have been assembled in North America, and its battery must meet specific mineral sourcing requirements. The manufacturer’s suggested retail price (MSRP) cannot exceed $55,000 for cars or $80,000 for SUVs, trucks, and vans. Finally, your modified adjusted gross income (MAGI) needs to be less than $300,000 if you’re married or $150,000 if you’re single.
Used cars do not receive a tax credit in 2022. Starting in 2023, a tax credit will apply if the vehicle is less than two years old and under $25,000. Your MAGI must be less than $150,000 joint or $75,000 single.
Final Thoughts
The Inflation Reduction Act can make it a little less expensive to be climate-friendly. Still, purchases can be costly and should be budgeted for. We help clients plan for new vehicles and home improvement projects as part of the wealth management we provide.
Schedule a complimentary, 15-minute call with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor with offices in Roseville and Folsom, CA, and Lehi and Logan, UT. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.