When to claim climate tax credits, rebates

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Households may soon be able to claim Thousands of dollars in tax breaks and cuts If they take steps to reduce their carbon footprint.

But green consumers will have to wait until 2023 — perhaps until 2024 or later — to see many of these financial benefits.

President Joe Biden’s Inflation Reduction Act Occurred To act on August 16, representing largest federal investment To fight climate change in US history. Among other measures, the law offers financial incentives to consumers who buy high-efficiency appliances, buy electric cars or install solar panels on roofs, for example.

These incentives and different qualification requirements start according to different timelines. Here’s when consumers can expect to see them and how to decide when to buy.

When do you get tax credits for new and used electric cars?

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There are many moving pieces associated with the incentives for new and used electric vehicles – and each may influence when a consumer chooses to buy.

Consumers who buy a new electric vehicle can get a tax credit of up to $7,500. Used cars are eligible for up to $4,000. Each credit comes with different requirements associated with the consumer and vehicle, such as household income and sales price.

Consumers He may also be eligible To get additional incentives for electric vehicles from state and local governments or utility providers, according to rules already on the books.

The timing for used cars is relatively simple: purchases are eligible for the new federal tax credit starting in 2023. This “Previously Owned Clean Vehicle Credit” is available through the end of 2032. However, consumers in the used car market may want to wait until 2024 or later ( More on that shortly).

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The timing of the new vehicles is more complicated. There are three timeframes worth considering, and each has its own advantages and disadvantages: Purchases in 2022, 2023 and 2024 onward, according to Joel Levine, CEO of Plug in America.

A tax cut for new electric cars was already on the books — also worth up to $7,500. But the Inflation Control Act has amended some rules that may limit the qualification in the near term.

One of the rules went into effect when Biden signed the law on August 16, and it says that final assembly of the new car must take place in North America.

Advantages and disadvantages of buying in 2022 or 2023

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Two more rules come into effect in 2023. One of them includes the requirement to obtain vital minerals for a car battery; The second requires that part of the battery components be manufactured and assembled in North America. Consumers lose half the value of the tax credit—up to $3,750—if one of these requirements is not met; They will lose the entire $7,500 for failing to meet both.

In addition, household income for consumers and the retail price of the vehicle It must be less than certain thresholds Starting in 2023 to qualify for a tax exemption.

Consumers buying in 2022 can avoid these requirements; However, they will still be subject to North American final assembly rules that took effect in August. The tax authority And the US Department of Energy Tips to help consumers determine eligible car models.

Many new electric vehicles may not immediately qualify for tax credits in 2023 as companies work to meet new manufacturing rules, according to experts.

New incentives for electric vehicles in the inflation reduction law

“If you want an EV, go buy an EV, [but] Waiting four months for credit is risky, Levine said, adding: “There is a lot of uncertainty about what will be available on January 1st.”

One potential upside is to wait until 2023 or later: Purchases of GM and Tesla models will be eligible. They do not qualify in 2022 due to current restrictions on the tax credit that will expire next year.

“If you look at these two and are really worried about getting [tax] “Credit, you’ll have to wait,” said Levine. Of course, consumers will need to meet the income and selling price rules at that point.

Consumers who buy eligible cars in 2022 or 2023 will only get the tax credit when they file their tax returns — and then only if they have a tax obligation. This means that consumers may wait several months to a year for their benefit, depending on the timing of the purchase.

“If your tax liability is $5,000, you can use $5,000 of the credit — the other $2,500 turns into smut,” Stephen Schmol, a principal at KPMG, said of the new car credit.

More ‘consumer-friendly’ EV base in 2024

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But starting in 2024, a fundamentally new mechanism will turn the tax credit into a point-of-sale discount on new and used electric vehicle prices. Consumers won’t have to wait to file their taxes to reap the financial benefits – the savings will be immediate.

“This is really helpful, especially for people who don’t have a lot of money in the bank,” Levine said. ‘It’s a ton more consumer friendly.’

Here’s how the mechanism works: The Inflation Reduction Act allows a buyer to transfer his tax credit to a car dealer. The merchant – who must register with the US Treasury – will receive an advance payment of the consumer tax credit from the federal government.

In theory, the dealer would then offer a breakout of the car’s dollar-to-dollar rate, Levine said. Dealers are expected to use the money as a down payment to the buyer, reducing the upfront cash needed to purchase a vehicle. He added that there might be some negotiation on the part of the consumer.

These transfers apply to new and used vehicles purchased as of January 1, 2024.

When do you get tax credits for home efficiency upgrades

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There are two types of tax credits available to homeowners who make certain upgrades.

The “Noncommercial Energy Property Credit” is a 30% tax credit, up to $1,200 annually. It helps defray the cost of installing energy-efficient skylights, insulation, and exterior doors and windows, for example. The annual cap is higher – $2,000 – for heat pumps, heat pump water heaters, biomass stoves and boilers.

The Residential Clean Energy Credit is also a 30% tax credit. It is applicable to the installation of solar panels or other equipment that harnesses renewable energy such as wind, geothermal energy and biomass fuels.

Each policy improves and modifies existing tax credits that are due to expire soon, and extend them for approximately a decade.

This is really useful, especially for people who don’t have a lot of money in the bank.

Joel Levine

CEO of Plug In America

Tax credits cover project costs and are applied in the year that project ends. Legally, the project is complete when it is “put into service”.

The Enhanced Residential Clean Energy Credit is effective retroactively to the beginning of 2022. Therefore, solar panel installations and other eligible projects completed between January 1, 2022 and the end of 2032 are eligible for the 30% credit. Those who finished 2033 and 2034 are eligible for lower credits – 26% and 22%, respectively.

The Enhanced Non-Commercial Energy Property Credit is available for projects completed after January 1, 2023 and before the end of 2033. There are some exceptions – oil furnaces and hot water boilers with certain efficiency ratings qualify only before 2027, for example.

“If you complete a project and install it in 2022, it will not qualify for the new incentive,” Ben Evans, the federal legislative director for the US Green Building Council, said of the noncommercial energy property credit. “Look ahead and start planning projects, because implementing some of them will take time.”

According to KPMG’s Shmul, costs incurred in 2022 for a project completed in 2023 will still count toward the total value of the homeowner’s tax credit.

One caveat: Because these are tax breaks, consumers will only get the financial benefit when they file their annual tax returns.

When discounts for home upgrades are available

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Also, reduce inflation Creates two discount programs linked to clean energy and efficiency: One bid up to $8,000 and the other up to $14,000.

Unlike some tax credits, these rebates are designed to be offered at the point of sale – which means upfront savings for consumers.

One point: It likely won’t be widely available until the second half of 2023 or later, according to experts. That’s because the Department of Energy must issue the rules that govern these programs; The states, which will administer the discount programs, must apply for the federal grants; After approval, they can start issuing rebates to consumers.

If your tax liability is $5,000, you can use the $5,000 of the credit. The other $2,500 goes poof.

Stephen Schmol

Director at KPMG

The law does not specify a time frame required for this process.

Even on the most optimistic timeline, those funds may not become available to consumers until the summer of 2023, according to Cara Sol-Rinaldi, president and CEO of AnnDyl Policy Group, an energy and environmental policy strategy firm.

“It will all depend on how quickly these guidelines are written and put into place,” said Saul Rinaldi, who helped design the rebate programs.

Saul Rinaldi added that some states may also decide not to apply for the grants — meaning that rebates will not be available to homeowners in those states.

The HOMES discount program offers up to $8,000 to consumers who cut home energy via efficiency upgrades, such as insulation or HVAC fixtures. Total savings depend on the reduction in energy and the level of household income.

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The High Efficiency Electric Home Discount Program offers up to $14,000. Households get rebates when buying efficient electrical appliances: up to $1,750 for a water heater heat pump; $8,000 for a heat pump to heat or cool premises; And $840 for an electric stove or clothes dryer with an electric heat pump, for example. Non-hardware upgrades such as electrical wiring are also eligible.

Rebates from the High Efficiency program are only available to low-income families, which are defined as those earning less than 150% of the area’s median income.

Steve Nadel, executive director of the American Council on an Energy Efficient Economy, expects most states to participate. He said they were not likely to miss out on free money to residents from the federal government.

He said large countries “that work together and have the employees” may be able to start offering rebates as soon as possible in early 2023.

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