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Inflation Reduction Act

Kortney Redick, CPA & Leanne Tarleton

9/20/2022

The Inflation Reduction Act was signed into law in August of 2022 and established three credits for homeowners: the Energy Efficient Home Improvement Credit, the Residential Clean Energy Credit, and the Alternative Fuel Vehicle Refueling Property Credit. 
The Energy Efficient Home Improvement Credit
The Inflation Reduction Act created the Energy Efficient Home Improvement Credit from the Nonbusiness Energy Property Credit which ended on December 31, 2021. The Energy Efficient Home Improvement Credit made improvements to the Nonbusiness Energy Property Credit and extended it through December 31, 2032.
To qualify for this credit, the homeowner must either make qualified energy efficiency improvements, install new qualified energy efficient property, or perform a home energy audit. The improvements must meet specific energy efficiency requirements. Additionally, the homeowner must be the original user of the improvement and must reasonably expect to use the improvements for at least five years.
Energy efficiency improvements include windows, exterior doors, and insulation. Residential energy property is the energy-efficient version of certain home appliances such as heat pumps, central air conditioners, water heaters, furnaces, and boilers. 
The credit may also be taken when a home energy auditor comes to a principal residency and identifies the most significant energy improvements that could be made to a home. 
The credit is equal to 30% of the amount spent on qualified energy efficiency improvements, residential energy property, labor costs associated with energy efficient improvements, and home energy audits for a given year with an annual limit of $1,200 (excluding heat pumps). There are also component-specific limits each year. The limits are:
  • Windows: $600 per taxpayer
  • Exterior doors: $250 per door and $500 total per taxpayer
  • Residential energy property: $600 per taxpayer
  • Home Energy Audits: $150 per taxpayer
  • Heat pumps: $2,000 per taxpayer
Beginning after 2024, improvements will only qualify for a credit if the manufacturer creates a product identification number that the taxpayer includes on their tax return.
The Residential Clean Energy Credit
The Residential Clean Energy Credit extends and alters the Residential Energy Efficient Property Credit. This credit developed a new phase-out schedule for residential solar panels. The credit percentage in 2021 was 26%. Improvements installed between 2022 and 2031 will have a 30% credit. The credit percentage will decrease to 26% in 2033, 22% in 2034, and 0% in 2035. Biomass stoves will no longer qualify for the credit beginning in 2023. This credit is not refundable, but it can be carried forward to future years. 
The Alternative Fuel Refueling Property Credit
The Alternative Fuel Refueling Property Credit originally ended on December 31, 2021 but was brought back with the Inflation Reduction Act. The Alternative fuel Refueling Property Credit will extend through 2032. This credit is given to homeowners purchasing equipment to recharge an electric vehicle or equipment used to store or dispense an alternative fuel for vehicles. Beginning in 2023, the credit will also apply to bidirectional charging equipment. The credit is equal to 30% of the cost of qualified alternative vehicle refueling property with an annual limit of $1,000.