Inflation Reduction Act’s Environment-Related Tax Credits

August 30, 2022

The recently enacted Inflation Reduction Act of 2022 contains several new environment-related tax credits. The Act also extends and modifies some preexisting credits. This message covers key points on three of those credits.

Extension, Increase, and Modifications of Nonbusiness Energy Property Credit

  • Expands the time frame for specified nonbusiness energy property expenditures placed in service to before January 1, 2033
  • Increases the credit for a tax year to an amount equal to 30% of the sum of (a.) the amount paid or incurred by you for qualified energy efficiency improvements installed during that year, and (b.) the amount of the residential energy property expenditures paid or incurred by you during that year
  • Increases the amount spent for a home energy audit up to $150
  • Updates lifetime limitation to an annual one of up to $1,200 per taxpayer, per year
  • Annual limit of $600 for credits with respect to residential energy property expenditures, windows and skylights
  • Annual limit of $250 for any exterior door ($500 total for all exterior doors)
  • $2,000 annual limit for specified heat pumps, heat pump water heaters, and biomass stoves and boilers

Extension and Modification of Residential Clean-Energy Credit

  • Expands the timeframe for solar electric, solar hot water, fuel cell, small wind energy, geothermal heat pump, and biomass fuel property installed in homes in years before 2035
  • Expands the credit to include qualified battery storage technology expenditures

Extension, Increase, and Modifications of New Energy Efficient Home Credit

  • Expands the timeframe to eligible contractors for qualified new energy efficient homes acquired by a homeowner to before January 1, 2033
  • Increases the credit to $500, $1,000, $2,500 or $5,000, depending on which energy efficiency requirements the home satisfies and whether the construction of the home meets prevailing wage requirements

Please contact your SH&A representative with any questions about taking advantage of these new and modified tax credits.