Inflation Reduction Act: Green Tax Breaks

This year's biggest tax news is the Inflation Reduction Act of 2022 (IRA), signed into law in August.  It aims to combat climate change by offering tax incentives for eco-friendly choices. While some incentives target businesses, most are available to homeowners making energy-saving improvements.

Many IRA benefits are actually extensions or modifications of existing credits. For example, the nonbusiness energy property tax credit is now the "energy efficient home improvement credit" and is extended through 2032.  Starting in 2023, this credit offers 30% of eligible improvement costs, up to $1,200 annually, with specific limits for different improvements:

• $150 for home energy audits

• $250 per exterior door meeting Energy Star requirements ($500 total for all doors)

• $600 for high-efficiency Energy Star windows and skylights

• $2,000 for certain heat pumps, heat pump water heaters, and biomass stoves and boilers (this amount isn't subject to the $1,200 or $600 limits)

• $600 for other qualified energy property, like central AC, electric panels, water heaters, and furnaces

The IRA also renames the "residential energy efficient property credit" to the "residential clean energy credit," extending it through 2034.  The credit amount is 30% for 2023-2032, then drops to 26% in 2033 and 22% in 2034. This credit now includes battery storage technology but excludes biomass furnaces and water heaters.