There are federal tax credits available which empower Americans to make homes and buildings more energy-efficient to help reduce energy costs and demand, as we transition to cleaner energy sources.
The tax code saw some major changes in 2022 that will affect taxpayers when they file their returns in 2023 One of the most significant changes was the introduction of new tax credits that provide relief to millions of Americans In this article, we’ll break down what’s new for the 2022 tax year and how you can take advantage of the credits.
An Overview of The Inflation Reduction Act
Most of the new tax credits for 2022 originate from the Inflation Reduction Act (IRA) that was signed into law in August 2022. The IRA introduced a host of climate and energy tax credits, as well as extensions on existing credits benefitting individuals and families.
Some major changes include
- Extending the Child Tax Credit, Earned Income Tax Credit, and Child and Dependent Care Credit
- Introducing tax credits for energy efficient home improvements
- Adding tax credits for purchasing electric vehicles
- Expanding tax credits for renewable energy systems
While the IRA brings wide-sweeping changes, many taxpayers are wondering – how does this affect me for the 2022 tax year? Let’s take a closer look at some of the most impactful credits.
New and Expanded Tax Credits for Individuals
Child Tax Credit
The Child Tax Credit provides families up to $2,000 for each child under age 17. For 2022, the credit is:
- Fully refundable, meaning you can benefit even if you don’t owe any taxes
- Available to families making up to $200,000 per year (single filers) or $400,000 (joint filers)
Previously, the credit would only reduce your tax liability – now, taxpayers can take advantage even if they have little or no income.
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) benefits low-to-moderate income earners, particularly those with children. For 2022, the credit amounts and income limits have been expanded.
For example, a married couple filing jointly with 3 children can now receive a maximum credit of $7,430. Previously, the maximum was $6,728. Income limits have also risen across all categories.
Energy Efficient Home Improvement Credit
One brand new credit for 2022 is the energy efficient home improvement credit. Homeowners can claim up to $1,200 for installing qualified energy upgrades like:
- Insulation
- Energy efficient exterior windows and doors
- High efficiency heat pumps, water heaters, and air conditioning units
The credit covers 30% of the cost for upgrades installed in 2022 through 2032.
Electric Vehicle Tax Credit
Purchasing an electric vehicle in 2022? You may be eligible for a tax credit up to $7,500. The credit amount will vary based on the vehicle make and model.
Key things to know:
- Applies to new electric, plug-in hybrid, and fuel cell vehicles
- Phases out once an automaker sells over 200,000 electric vehicles
- You must purchase the vehicle – leases do not qualify
New Tax Credits for Businesses and Self-Employed Filers
The IRA also expanded tax credits for businesses investing in renewable energy and energy efficiency.
Renewable Electricity Production Tax Credit
The renewable electricity production tax credit provides 1.5 cents per kilowatt hour of electricity generated from renewable sources, such as:
- Solar
- Wind
- Geothermal
It was previously phased out but is now extended to facilities that begin construction by 2025.
Energy Efficient Commercial Buildings Deduction
Businesses can claim a deduction of up to $1.80 per square foot for installing lighting, HVAC, and building envelope systems that reduce total energy and power cost by 25% or more.
Alternative Fuel Vehicle Refueling Property Credit
Businesses that install alternative fuel infrastructure, like electric or hydrogen fueling stations, can receive a credit for 30% of the installation costs.
Other Extended Tax Credits to Remember
Some other tax credits that were set to expire have been extended under the IRA, including:
- Solar Investment Tax Credit – extended at 30% through 2032
- Carbon sequestration credit – increased from $50 to $85 per metric ton through 2032
For self-employed filers, the IRA also extends the ability to claim the child and dependent care credit against self-employment taxes until 2025.
Final Thoughts on the New 2022 Tax Credits
The Inflation Reduction Act brings the most significant changes to the tax code in recent years. There are now more tax credits available, with higher amounts, that benefit more taxpayers.
For individuals, make sure to consider the Child Tax Credit, Earned Income Credit, and new energy efficiency credits when filing your 2022 return. Businesses should look into renewable electricity, building efficiency, and alternative vehicle credits.
As always, be sure to consult a trusted tax professional if you need assistance navigating the new credits. Properly claiming all eligible tax credits will ensure you maximize your refund and savings for 2022.
Save Up to $1,200 on Energy Efficiency Home Improvements
Claim 30% up to $1,200 for these qualifying energy property costs and certain energy efficient home improvements.
Homeowners Can Save Up to $3,200 Annually on Taxes for Energy Efficient Upgrades
Through 2032, federal income tax credits are available to homeowners, that will allow up to $3,200 annually to lower the cost of energy efficient home upgrades by up to 30 percent.
In addition to the energy efficiency credits, homeowners can also take advantage of the modified and extended Residential Clean Energy credit, which provides a 30 percent income tax credit for clean energy equipment, such as rooftop solar, wind energy, geothermal heat pumps and battery storage through 2032, stepping down to 22 percent for 2033 and 2034.
ENERGY STAR provides the following information to help you learn:
EV Tax Credits: Everything You Need to Know for 2024 | Eligibility, Incentive Amount & More
FAQ
Who qualifies for new tax credits?
- File a state return.
- Be eligible for the CalEITC (income requirement is an exception) No more than $31,950 in earned income. For tax year 2022 forward, no earned income is required. You may even have a net loss of as much as $34,602 for tax year 2024 if you otherwise meet the CalEITC requirements.
How do I get the full $2500 American Opportunity credit?
- Be pursuing a degree or other recognized education credential,
- Be enrolled at least half time for at least one academic period* beginning in the tax year,
- Not have finished the first four years of higher education at the beginning of the tax year,
Who qualifies for the Inflation Reduction Act?
Qualifying Households:
Low-income households (<80% of their Area Median Income (AMI): 100% rebate of the purchase and installation costs for qualified electrification projects. Moderate-income households (80-150% of their Area Median Income): 50% rebate of the cost of home electrification projects.
What is the new $3600 child tax credit?
The American Rescue Plan Act (ARPA) increased the Child Tax Credit (CTC) for tax year 2021. Tax filers could claim a CTC of up to $3,600 per child under age 6 and up to $3,000 per child ages 6 to 17.