As climate change has become more of a political issue, the federal and state governments are actively incentivizing taxpayers to “go green”. The Inflation Reduction Act recently passed by Congress made significant changes to the credits already offered by the federal government.
Changes to the credits for homeowners
- The Energy Efficient Home Improvement Credit takes effect January 1, 2023. Until the end of 2022, the lifetime credit for 10% for the cost of installing insulation, windows, roofing, doors, and other energy-saving improvements was capped at $500. The new credit is $1,200 annually and equal to 30% of those costs. Additional eligible improvements now include biomass stoves and boilers, electric panels and home energy audits.
- The Residential Clean Energy Credit for solar, wind, and geothermal home improvements is extended to 2034. It increases in 2023 from 26% to 30% but falls back to 26% in 2033 and 22% in 2034. Principle residences, second homes, and new construction qualify for this tax credit, which can be applied for on Form 5695 when filing for taxes. Rentals are not eligible to receive these tax credits. Any unused tax credit from 2020 or 2021 may be carried forward for credit in 2022.
News for Electric Vehicles (EVs)
After August 16, 2022 there is an income limit for taxpayers to qualify for a credit for purchasing an EV, Modified Adjusted Gross Income may not exceed $300,000 if married filing jointly, $225,000 if head of household, or $150,000 if single.
After August 16, 2022 and through 2032, the final construction of the electric vehicle must occur in North America. Before you shop, check out the list of eligible vehicles published by the Department of Energy at https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit. The credit remains $7,500 per vehicle but it is now split into $3,750 if at least 40% of the critical battery materials are extracted or recycled in the US or a country with a free trade agreement with the US, with that percentage increasing after 2023. For the remaining $3,750 credit, 50% the battery components must be manufactured or assembled in the US or a country with a free-trade agreement with the US. That 50% minimum requirement is also scheduled to increase annually and reach 100% by 2029.
Governor Phil Murphy previously signed an incentive to help New Jersey residents purchase more vehicles that are electric. This incentive provides eligible buyers who purchase new, eligible zero-emission vehicles after July 25, 2022 up to $4,000 for vehicles with a MSRP under $45,000, and up to $2,000 for vehicles between $45,000 and $55,000. The rebate is applied at the dealership upon purchasing the vehicle and will appear as a credit towards payment. The buyer must be a New Jersey resident with a valid NJ driver’s license, own the vehicle for at least three years, and agree not to transfer the vehicle’s title out of state. For more information about eligible vehicles and eligible dealers, visit https://chargeup.njcleanenergy.com/?utm_campaign=q42022&utm_source=google&utm_medium=cpc&gclid=CjwKCAjw8JKbBhBYEiwAs3sxNzqNUXd5g3KXPa5FX2UwCJeLzcotxgwgIztPP5PpRHHCTFE5HVYI_BoC2sYQAvD_BwE. Another EV bonus, the NJ Division of Taxation stated that the NJ Sales and Use Tax Act provides a Sales and Use Tax exemption on vehicles that are zero-emission (N.J.S.A. 54:32B-8.55).
These programs are meant to encourage the switch from internal combustion to energy-efficient vehicles and home equipment. Energy credits for homes will also help promote environmental and economic benefits including less air pollution and reduced greenhouse gas emissions. If you have further questions regarding energy tax incentives or rebates please contact our office.
Article submitted by Katia Morales
Arco, M., (2022). N.J. is offering up to $4k to help you buy an electric car. Here’s what you need to know. NJ.com. https://www.nj.com/politics/2022/08/nj-is-offering-up-to-4k-to-help-you-to-buy-an-electric-car-heres-what-you-need-to-know.html
Federal Tax Credits. Energy Star. https://www.energystar.gov/about/federal_tax_credits
Lewis, M., (2022). Here’s how the new US tax credits and rebates will work for clean energy home upgrades. Electrek. https://electrek.co/2022/08/19/us-tax-credits-rebates-climate-law/
Montoya, R., (2022). Electric Vehicle Tax Credits: What You Need to Know. Edmunds. https://www.edmunds.com/fuel-economy/the-ins-and-outs-of-electric-vehicle-tax-credits.html