Which Home Improvements Qualify?
A growing number of homeowners are looking for opportunities to make energy-efficient improvements to their homes. Not only are such renovations good for the environment but they can also lower your monthly energy bills. Plus, under the provisions of the Inflation Reduction Act, some of the costs of making these improvements are eligible for federal tax credits. Read below to see which home improvements are covered under the various credits.
Residential Clean Energy Credit
This credit was an update to a previous program, and homeowners can now offset 30% of the cost of installing solar panels. The higher limits are scheduled to last for 10 years before being phased out. The credit also added solar battery packs, which was not expressly mentioned in the previous program.
Although solar panels require a significant initial investment, they often pay for themselves over time through tax credits and rebate programs, as well as by lowering your monthly electricity bill.
Energy Efficient Home Improvement Credit
This initiative isn’t getting as much publicity as solar credits; however, it offers up to $1,200 per year for energy efficient improvements to your home. This was also renewal of a previous program, and the limits of the older program apply for 2022. Starting in 2023, the lifetime limit for the credit is removed — and you would be eligible to receive up to 30% of the cost for improvement items like certain windows, doors, water heaters and electrical panels. This $1,200 credit may be taken annually for the length of the program, which is set to expire in 2032.
High-Efficiency Electric Home Rebate Program
This program has income limits, is targeted at low- and moderate-income families and will be administered by individual states. The goal of the program is to incentivize qualified homeowners to make energy-efficient upgrades to their homes.
Energy Star is a government-backed certification that lets consumers know an appliance is energy efficient. Products that meet Energy Star requirements have been independently certified to meet the EPA’s strict energy efficiency standards. The Inflation Reduction Act provides up to $840 in consumer rebates for purchasing energy-efficient appliances such as electric stoves, cooktops, ranges and ovens.
Outside the kitchen, households can qualify for up to $1,750 in tax credits for the purchase of a new electric water heater. Lower-income households can receive a rebate of up to $8,000 on the installation of a heat pump used for space heating or cooling.
Electrical upgrades could also be a meaningful way to improve your home’s overall efficiency. This rebate program can offset the cost of upgrading an electrical panel up to $4,000 and electric wiring up to $2,500.
Lastly, weatherizing a house is one of the most basic yet effective ways to reduce energy use. The Inflation Protection Act provides a rebate of up to $1,600 for improvement of your home’s insulation, air sealing and ventilation.
Programmable thermostats
Programming your thermostat to automatically lower your heat by a few degrees each night, or during the day when no one is home, can significantly reduce the amount of energy you use over the course of a year.
Although not part of the Inflation Reduction Act, many local power companies offer rebates to reduce or eliminate the cost of purchasing a smart thermostat. Contact your local provider to see if you’re eligible for a thermostat at a reduced cost.
At Creative Planning, we work with clients to identify various tax-saving opportunities and improve their personal financial outlooks. We’re here to help you navigate a wide range of tax credits, deductions and rebates. To learn more, schedule a call with a member of our team.
Sources:
https://www.edf.org/article/8-ways-inflation-reduction-act-can-save-you-money
https://www.bankrate.com/real-estate/eco-friendly-home-improvements/
