We get a lot of questions about tax credits for things like electric vehicles, solar panels, and home improvements. This has been a moving target over the past few years but recently, the Inflation Reduction Act clarified and extended many of these credits.
Electric Vehicles
Tesla makes awesome vehicles! They are good looking, fun to drive and the gadgetry is beyond cool. If you see me driving one, it’s only for those reasons, not because I’m trying to save the planet! They still pollute, they just do it somewhere other than in your own backyard. I’m not sure, as a taxpayer, how I feel about our government subsidizing these vehicles, but here we are...
The Electric Vehicle credit was an Obama-era measure meant to subsidize the new-at-the-time EV technology. It disappeared for a while but is back with a few changes:
The credit remains at $7,500 only this time there is no limit on the number of vehicles each manufacturer is allowed to produce. They do, however, need to be assembled in the USA.
Qualifying vehicles must have a sticker price of $55k or less ($80k for SUVs).
The credit is non-refundable meaning you must have tax liability to use it. Your income must also be less than $150k for a married couple (half that for single taxpayers.)
Used vehicles now qualify for a reduced credit of $4,000 but they must be less than 2 years old and purchased from a qualifying dealer.
There are currently 27 vehicles that qualify for the credit. The full list can be found here: https://www.fueleconomy.gov/feg/tax2023.shtml (Just select the date of purchase at the bottom of the screen.) The state of Utah no longer offers credits, but they do exempt EVs from emissions testing and allow them to drive toll free in HOV lanes.
Sadly, the Canoo Lifestyle Vehicle, which was originally on the list, will not be ready for production until 2025. (A weirdly cool vehicle that looks like it was designed by 1st graders.)
Home Improvements
The most recognizable and probably beneficial issue addressed by the new law is the solar credit which has been slated to expire several times over the past few years. It has now been renewed through 2033. The credit remains at 30% of the cost of an eligible solar voltaic system (including installation) on your primary or secondary residence. Utah residents can also claim an additional $400 state tax credit. Neither of these are refundable but unused credits can be carried forward.
This same credit is also available for wind turbines, geothermal, and battery storage units.
You don't have to go all out to score substantial tax savings though; There are several smaller credits available home improvements that are far more affordable for the average homeowner. These include:
Exterior doors (30% up to $500)
Exterior windows (30% up to $600)
Insulation materials (30% of total)
Home energy audits (30% up to $150)
High efficiency HVAC systems (30% up to $600)
These items have an annual limit of $3,200 total credit and the improvements must meet the applicable energy efficiency guidelines. They cannot be structural or cosmetic, nor can they be for investment properties, such as rentals. Those still qualify for a deduction, just not a credit.
No matter your stance on climate change, these credits can offer significant tax savings. But beware!!! As enticing as they are, there are a lot of scammers and salesmen out there. We’ve had clients invest tens of thousands only to find out that they didn’t qualify for the hoped-for credit. Before you decide on any of these, do your homework and consult your tax advisor. That’s not just something we say, it’s something you should really do!
And when you get that new EV, come on over because I want to take it for a spin!