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A sweeping health care, climate and tax bill signed by President Joe Biden invests nearly $370 billion in battling climate change and improving America’s energy security. To enlist taxpayers in those efforts, the law provides tax breaks and financial incentives to encourage energy efficiency.
Here are three tax breaks you may qualify for under the legislation, named the Inflation Reduction Act by its Democratic sponsors.
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Clean Vehicle Credit of Up to $7,500
If you’re in the market for an electric car, now may be the time to buy. The adjusted gross income (AGI) is less than $150,000 ($300,000 for married couples who file taxes jointly).
And unlike the existing tax credit, the new version includes a vehicle cost requirement. For new cars, the manufacturer’s suggested retail price must be less than $55,000. Vans, pickups and SUVs must have an MSRP under $80,000 to qualify for the credit.
The vehicle also must be manufactured in North America to be eligible.
Clean Energy Credits for Used Car Purchases
The rules differ a bit if you buy a used electric vehicle. The tax credit is worth up to $4,000 or 30% of the purchase price, whichever is lower.
Similar to how the credit works with new EVs, you must meet an income requirement. But the limits are lower when you buy used. For single tax filers, your AGI can’t exceed $75,000. The amount increases to $150,000 for married couples filing jointly.
The purchase price of a used electric car can’t exceed $25,000 to qualify for the credit, and the vehicle must be at least two years old.
Tax Credits for Solar Panels
The new law provides a tax credit if you install solar panels on your home. The credit is an extension of an existing tax break that has allowed taxpayers to receive a 26% tax credit for solar panels installed from 2020 to 2022. That credit was scheduled to shrink to 22% for 2023, then expire in 2024.
The new climate and health care law allows taxpayers to receive a tax credit of up to 30% for residential solar panels through 2032. The credit decreases to 26% in 2033, then to 22% in 2034.
You’d claim the credit on your federal income tax return to reduce your tax liability. To qualify for the new version of the credit, you must put the solar system into service during the tax year in question, and it must generate electricity in a home located within the U.S.
Tax Rebates for Buying New Energy-Efficient Appliances
While various regulations still need to be sorted out, taxpayers may qualify for up to $8,000 off the purchase of energy-efficient appliances under the new law.
The Department of Energy will provide billions in funding to states. They’re to use the money to create tax rebate programs to encourage people to buy energy-saving appliances, including those used in the kitchen and laundry room.
The amount of the tax rebate will depend greatly on the type of appliance and your income.
Taxpayers shopping for an electric stove, cooktop, range or oven may score a rebate of up to $840. But you may save as much as $1,750 on the purchase of a heat pump for a water heater. And the tax rebate will increase substantially—to up to $8,000—when you buy a new heat pump for home heating or cooling.
Stay alert for an announcement from your state about tax rebates offered in your area.
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