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The Inflation Reduction Act of 2022 provides substantial tax breaks for homeowners who navigate the rules. Most of the breaks started in late 2023 or early 2024 and last through 2032.
The tax breaks are designed to encourage people to make their homes more energy efficient and reduce use of fossil fuels.
Most of the program, known as the section 25C energy efficient home improvement credit, is administered by the states based on guidelines the Department of Energy issued in July 2023. Since the states have some flexibility, your potential savings depend on where you live. Also, the tax breaks are reduced, though not eliminated, as income rises.
In general, you receive a credit equal to 30% of the cost of qualified improvements, up to a dollar limit. The dollar limit varies with the type of improvement and your income. The new tax credit can be combined with those that already existed for energy-related home renovations.
The first step is to have a comprehensive home energy audit. You don’t qualify for most of the new credits unless you first have a home energy audit that meets the guidance issued by the IRS in September 2023.
You receive a credit of 30% of the cost of the audit, up to a maximum credit of $150 (30% of $500), even if you don’t make any improvements.
The audit report must be comprehensive and in writing. It must follow the process in the IRS guidance, identify the most significant and cost-effective energy efficient improvements that could be made to the residence, and include an estimate of both the energy and cost savings of each improvement discussed.
The auditor should tell you that he or she is certified to conduct a home energy audit and that the audit and the auditor are qualified under section 25C of the tax code.
In addition to a dollar limit on each type of improvement, there’s an annual limit on the total credit per taxpayer that varies with the level of income. Because of the annual limit, some taxpayers should spread improvements over several years.
Because the combination of tax breaks and their limits can be complicated, apps have been developed to help homeowners track and plan improvements, such as Green Door and Rewiring America’s Inflation Reduction Act calculator. I haven’t used any of the apps, but they’re available for you to consider.
For details about the credit, search the IRS web site for “credit and deductions under the Inflation Reduction Act of 2022” or go to this page on the IRS web site.
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Copyright for syndicated content belongs to the linked Source : Forbes – https://www.forbes.com/sites/bobcarlson/2024/04/28/capture-the-new-tax-breaks-on-home-improvements
