Knowing the tax changes that apply for the 2023 tax year will give you a step up in planning and can impact your bottom line. This blog series will recap the most important tax law changes and adjustments for 2023, with some related items grouped together.
The 2nd series in our blog post will cover residential clean energy credit, energy-efficient home improvement credit, clean vehicle credit.
Residential clean energy credit:
This credit is for individuals that installed an alternative energy system in your home i.e. solar, wind, geothermal, solar electric equipment, solar-powered water heaters, wind turbines. This credit also applies to battery storage technology with a capacity of at least three-kilowatt hours.
The size of the credit is 30% of the cost of the equipment and installation for renewable energy systems. The full credit goes through 2032. After that, it drops to 26% in 2033 and 22% in 2034, before it expires in 2035.
Energy-efficient home improvement credit:
This credit for 2023 through 2032 is now bigger and better. 1) 30% credit for the cost of certain types of insulation, boilers, AC systems, windows, doors, etc. added to your residence. 2) the $500 lifetime limit is replaced with a $1,200 annual limit. This $1,200 annual limit is lowered to $500 in the aggregate for exterior doors and $600 for exterior windows and skylights and other items. For a biomass stove or hot water boiler, or an electric or natural gas heat pump put in the home the annual limit is $2,000. 3) A home energy audit can get you a credit of up to $150.
Clean vehicle credit (formerly electric vehicle tax credit):
2023 through 2032, the maximum tax break remains $7,500 for buying a new EV, but the factors for figuring the credit are new.
To be eligible for the full $7,500 credit, EVs put in use after April 17, 2023, must meet a critical minerals requirement and a battery component rule. If only one factor is met, then the credit is capped at $3,750. Eligibility for the full $7,500 credit for EVs put in use before April 18 is based on the vehicle’s battery capacity and the final assembly of the EV must take place in North America. This last rule applies to all EVs first placed in service after Aug. 16, 2022.
Two new rules could prevent you from claiming the tax break if you buy a new EV.
- The manufacturer’s suggested retail price can’t exceed $55,000 for sedans and $80,000 for vans, SUVs, and pickup trucks. An EV’s classification as a sedan a van, SUV, or pickup truck is based on the vehicle’s fuel economy label on the window sticker and the EPA size class published at the website gov.
- There is an income limit. You can’t claim the credit for purchasing a new EV if your modified adjusted gross incomeexceeds $300,000 for joint filers, $225,000 for head-of-household filers, or $150,000 for single filers.
A smaller credit (equal to the lesser of $4,000 or 30% of the sales price for used Ev’s bought from a dealer. If your AGI is more than $150,000 for joint filers, $112,500 for head of household or $75,000 the credit is NOT available.