Harnessing the Power of Clean Credits
Published on by Andre Williams in Tax Services
In recent years, a growing emphasis on sustainability has spurred various government initiatives aimed at encouraging environmentally friendly practices. Among these are three key credits that stand out for homeowners and environmentally conscious individuals:
- The Residential Clean Energy Credit
- The Energy Efficient Home Improvement Credit
- The Clean Vehicle Credit.
Find out how each of these credits can help you to save on your taxes.
Residential Clean Energy Credit
The Residential Clean Energy Credit is a beacon for those seeking to reduce their carbon footprint. Homeowners can qualify for this credit by investing in renewable energy systems, such as solar panels, wind turbines, or geothermal heat pumps.
Taxpayers are entitled to a credit that is 30% of the cost of said renewable energy sources. Not only do these installations contribute to a cleaner environment, but they also offer long-term savings on energy bills.
Energy Efficient Home Improvement Credit
Home improvement enthusiasts looking to enhance energy efficiency can benefit from the Energy Efficient Home Improvement Credit. This credit encourages the implementation of energy-saving measures within the home, such as upgrading insulation, installing energy-efficient windows and doors, or incorporating smart home technologies.
While the credit is not new, recent changes have revamped the impact that this credit can have on taxpayers. In previous years, this credit was limited to $500 in a lifetime. Starting in 2023 the credit is now an annual credit of up to $1,200 as opposed to the lifetime limit. Also, the credit for exterior improvements has increased from 10% to 30% of the cost of the improvements for tax year 2023.
Clean Vehicle Credit
For those eyeing a cleaner commute, the Clean Vehicle Credit offers a compelling incentive. This credit encourages the adoption of electric or fuel cell vehicles, promoting a shift away from traditional fossil fuel-powered cars.
The Clean Vehicle Credit allows for a credit of up to $7,500 when purchasing a new electrical vehicle. To qualify for the credit clean vehicles must meet various criteria such as:
- Final assembly occurring in North America
- Battery components must come from North America
- Critical minerals within the battery must be recycled within North America or the minerals must come from the U.S. or a country with a Fair-Trade Agreement with the U.S.
The credit is not exclusive to new vehicles. Used vehicles can also receive a generous tax credit. While not as much as $7,500 for new vehicles, used vehicles can receive a credit of the lesser of $4,000 or 30% of the sale price.
It is vitally important to be aware that each credit, whether for new or used vehicles, can come with limitations. The credit is limited to vehicles under a certain value and the credit is also limited to individuals under a certain income threshold depending on filing status.
Watch top tax pros Andre Williams and Mark Hamad share strategies and insights on renewable energy credits, expiring provisions of the Tax Cuts and Jobs Act, estate planning, charitable donations, and more in this year-end planning video.
Take a deeper dive into upcoming tax changes and what they mean for your bottom line – watch on-demand as our top tax pros unpack upcoming changes in our 2023 Signature Tax Event.
You may also be interested in retirement and tax-planning opportunities stemming from the Secure Act 2.0, including converting a 529 plan to a Roth IRA.
Proper planning is critical when considering the credits mentioned above. If you have any questions or would like to learn more about year end tax planning, contact one of our tax pros. As always, we’re here to help!