Did you know about the climate related tax breaks you could get for the 2022 tax filing?
If you have been looking at options that can help your home or lifestyle to be more climate friendly, yet you are worried about how these costs will influence your tax return, you are actually in luck! There are a few things you can add this year to your tax return that are going to qualify for tax credits and they are all centered around the idea of being more environmentally aware and friendly.
So if you have been already changing some things around your home, there is a high chance that if you have sought to be as green as possible, you will be able to get tax credits for your choices. From using climate friendly materials to what home or car upgrades you have done this last year (or that you plan to do in the next few years) could help you lower the total value of your tax bill!
Today we explained how this whole new tax credit provision works and which are the qualifying components so you do not miss any possible entries for tax credits this year!
Let us know if you have used any of these already or if you plan to in the comments below!
Energy Tax Credit 2022: What is it?
All American households will be able to earn tax credits for their 2022 tax filing as long as they can prove that they have taken steps toward going green and helping the climate. This can take a lot of forms, from getting tax credits for household upgrades and helpful equipment to making car changes and most other measures that show the household is trying to reduce its carbon footprint. These households will in turn receive tax credits and rebates.
It is in everyone’s interest to help the climate and reduce the carbon footprint, but the government has become aware that if there are incentives for the population, more and more people will be willing to join the fight against climate change. And since this move will help all Americans when it comes to how much taxes they will have to pay, it is the best incentive we have seen in the last few years.
Continue reading to find out how being climate friendly can help you qualify for tax credits up to $10,000 and, in some cases, even more than that!
Inflation Reduction Act of 2022
These new tax credits and rebates are not just because the IRA suddenly decided to give them to climate-conscious people, but rather because they are part of the Inflation Reduction Act of 2022, which was signed into law last August. It aims to reduce inflation through a number of means, including lowering the prices of prescription drugs, reducing the deficit, and promoting clean energy by investing in the energy production that is done domestically. This is also why the climate tax breaks have been introduced: to reward Americans who are climate conscious.
You can earn the IRA’s ax credit in four ways, each of which comes with its own amount that is awarded. Let’s take a look at all four of them in detail!
Energy-Efficient Appliances
The good news is that the program rewards you if you have been considering getting an energy-efficient appliance. These products are considered better for the environment because their impact on emissions and energy consumption is calculated to be lower. These are the products that are going to help you qualify for these tax credits, and how much each of them is going to give you.
You can get $300 in tax credits if you get heat pumps with an air source from Energy Star. Likewise, you also get $300 for Energy Star central air conditioning units.
If you have had your eye on an Energy Star boiler that is powered by gas, the tax credit will be $150. In addition, if you purchase a fan or furnace powered by propane, gas, or oil, you will receive a $150 tax credit.
For Energy Star water heaters that run on gas or electricity (non-solar), you can get a $300 tax credit. And if you have a main circulating fan that does not require more than 2% of the energy produced by your furnace, you can get $50.
With this type of climate tax break, you can end up earning tax credits that can amount to a total of $1,250!
Energy-Efficient Home Improvements
If you have done some home improvements in 2022, you can also end up getting some tax credits if the materials you have opted for are on the list that has been made by the IRA. If your insulation purchases are on the approved list, you can receive up to $500, or 10% of the total cost of your insulation purchases. The ones that qualify include rolls, batts, expanding spray, rigid boards, weather stripping, blow-in fibers, house wrap, caulk, and spray foam in the can.
The same 10% tax credit up to $500 applies to skylights, windows, and doors, as long as they are Energy Star-certified. Similarly, the same rule applies to roofs, as long as the new roof is energy efficient and climate-friendly. This roofing must be Energy Star certified and made of metal or asphalt, with the appropriate cooling granules or pigment coating!
The installation cost of all these products is not included in the calculations for the tax credits, so be sure not to add it up!
If after this article you would like to read more about other tax breaks and how you can calculate your income tax, it would be useful to read more about it in this book!
Renewable Home Energy Systems
There is nothing more climate-friendly than the fact that you have decided to invest in some renewable energy systems for your home and the IRA also believes so. This is why they offer tax credits that are equal to around 30% of the cost of how much it would cost to install them into your home. So if you have installed some of the qualifying systems in 2022 you can already start naming them for tax credits. The great news is that they have extended this type of tax credit until 2032, so if you want to take advantage of this law you still have some time.
The systems that are included in this 30% tax credit for climate action include solar water heaters, solar panels, small wind turbines, fuel cells, geothermal heat pumps, and biomass fuel stoves.
You may have heard about this way of gaining tax credits before but the specifics have changed around the law. At first, it was 26%, and it would continue to go down 2% each year until 2024. Now, it has been capped at 30% and it will last until 2032 in an effort to help combat climate change and reduce gas emissions. What’s more, unlike the home improvement ones, you can include the cost of installation in the sum from which the credits will be calculated!
Electric Vehicle
If there was one of the tax breaks you were probably expecting to see on this list it would have been the ones for electric vehicles, especially since we are talking about climate action here. And the good news is that you can get a pretty hefty sum as tax credits if you choose to go down the route of an electric vehicle (EV). That means that if you buy one second-hand, the credit can go up to $4,000 and if you are getting a new one, it can go up to $7,500.
The best thing about this part is that if you have your eyes on an EV, you do not have to wait until tax season rolls around to take advantage of this benefit. It is transmissible, which means the auto dealer can get it and it can be used at the moment when you decide to buy the car. It is a great benefit when you are buying, in addition to being a good thing for the climate.
However, you have to be careful about the fine print of this tax credit part. There are a few rules which have to do with the modified adjusted gross income (MAGI) depending on if you are a single or joint filer and there are some conditions about how old the car should be to be able to claim this benefit if you are buying second hand. For the new cars, they also have to be of a certain price so it can get a bit tricky. You can read all about these provisions on the U.S. Department of Energy site.
If you are a recent retiree, there is no need to worry about how much your income is going to be taxed. Certain types are not going to be taxed at all, no matter in what tax bracket you find yourself! Read all about these types of retirement income that do not get taxed here!
