How to Reduce Energy Costs with the Inflation Reduction Act
The Cut Inflation Act signed by President Biden this week aims to move America toward a greener future by reducing the cost of electric vehicles, energy-efficient appliances and rooftop solar panels.
Many consumers will benefit from this. But it’s complicated — because limits apply. You will get some relief, but most will come at tax time.
For example, the Model Y is the only Tesla that will qualify for the upcoming $7,500 tax credit. Why? Because other models are too expensive. Or the batteries that power electric vehicles come from China. And there are income thresholds for qualifying for the tax relief.
The legislation is 730 pages of dense legalese. Many details remain to be finalized.
We’ve extracted the information that will be most useful to people looking to make climate-friendly purchases.
Buyers of new electric, plug-in hybrid and hydrogen fuel cell vehicles will get a tax credit of up to $7,500, according to Battery. A rebate of $3,750 will be paid if at least 50% of battery components are produced in the United States or FTA countries, and an additional $3,750 will be paid if at least 40% of Battery minerals are sourced from the United States or FTA countries. Starting in 2024, consumers will be able to take advantage of this tax credit in the form of a point-of-sale rebate at the dealership.
But only vehicles costing less than a certain amount will be eligible. According to Kelley Blue Book, the average list price for a new electric vehicle in June was about $67,000, but the new tax credit is limited to sedans, hatchbacks, wagons and other vehicles that cost less than $55,000. This excludes more expensive electric vehicles such as the Tesla Model S, BMW i4, BMW i7 or BMW iX and Hummers. For SUVs, pickups and vans, the price threshold is higher, at $80,000 to get the tax relief.
And there is another wrinkle. As of August 16, the day the bill was signed, the old electric vehicle tax credit is gone and only vehicles assembled in North America are eligible for the new tax credit. This eliminates electric cars such as the BMW i4, Hyundai Ioniq 5, Kia EV6 and Kia Niro Electric, Toyota bZ4x and Toyota Mirai and Subaru Solterra. How do you know if the final assembly of an electric vehicle took place in North America? Enter the 17-character Vehicle Identification Number (VIN) into the National Highway Traffic Safety Administration’s VIN decoder tool: https://vpic.nhtsa.dot.gov/decoder/.
Car buyers must meet certain income guidelines. Households whose adjusted gross income does not exceed $300,000 will be eligible for the credit. Household heads must earn less than $225,000. Individuals will only be eligible with an income below $150,000.
Used vehicles are also eligible for a tax credit of $4,000 or 30% of the sale price, whichever is lower. The car must be at least 2 years old, cost less than $25,000 and be sold by a qualified dealer. There are also income requirements for people claiming this credit: less than $150,000 for married couples or $75,000 for single filers. As with new cars, the tax credit will be refundable at the point of sale from 2024.
The Reducing Inflation Act contains many provisions to encourage a homeowner to make energy-efficient improvements to their home. But the biggest credits and rebates are available for the purchase and installation of a specific tool: a heat pump, an efficient all-in-one heating and air conditioning unit that replaces a furnace and an air conditioner.
As with cars, discounts depend on your income. If your household income is less than 80% of the California median household income — $78,672, according to the U.S. Census — you qualify for a nearly 100% rebate. This means, for example, that you could recoup $9,750 on a heat pump purchase of $10,000. If your household income is between 80% and 150% of the median income, you qualify for a 50% discount. Households earning more than 150% of median income are not eligible.
Rebates are administered by the state. Once the federal government allocates funds, each state will implement a program. The State Renewable Energy and Efficiency Incentives Database tracks tax incentives and credits related to energy efficiency in all 50 states.
But beyond the refund, you may be eligible for a federal tax credit. Anyone, regardless of income, is eligible.
This tax credit is good for 30% of the total cost of your heat pump, including labor costs, up to $2,000. It is available for all pumps purchased this year and is valid until the end of 2032.
You can also claim up to $1,350 in tax credits on other energy-efficient expenses, such as $600 for air-barrier materials or systems, $600 for required power supply upgrades electrical and $150 for a home energy audit, in which contractors and utility companies come to your home and tell you what needs improvement.
The Cut Inflation Act could help you save money if you buy an electric range, cooktop or wall oven.
It only provides an approximate framework for discounts; the exact terms will be decided by California regulators, depending on your income and where you live. (Rebates, which are meant to be delivered at the point of sale, are not immediately available. California is to set rules.)
You could be eligible for a rebate of up to $840 for an electric range or electric heat pump dryer and up to $500 to help cover the costs of converting your power supply from natural gas or propane to electricity . If you need to upgrade your home’s electrical panel to support these devices, you could get a tax credit of up to $4,000.
As with heat pumps, revenue requirements apply.
Home Efficiency Projects
The bill provides a 30% tax credit on the cost of installing efficient exterior windows, skylights, exterior doors and certain other items.
This tax credit is worth up to $1,200 per year, although a larger total annual credit of $2,000 applies to certain large projects. Some items have a cap – for example, there is a $500 limit for new doors and $600 for windows and skylights. Facilities must meet certain efficiency standards, such as an Energy Star rating.
Homeowners could get a 30% tax credit on the cost of installing solar panels or other tools to harness renewable energy like wind, geothermal and biomass.
That could help cover about $4,500 to $7,500 of the $15,000 to $25,000 average price of a residential solar electric system, according to the Center for Sustainable Energy.
This is an improvement on an existing tax credit of 26% for installing solar home energy which would have dropped to 22% next year and fully expired by 2024.
And unlike the current tax credit, it extends to battery storage technology – so homeowners using solar power can install a battery system that stores excess renewable energy for use. later.