Both the State of California and the federal government are focused on increasing energy efficiency and promoting “clean energy” policies.
And to further this agenda, the government is offering energy-related tax credits that could knock a sizable chunk off your tax bill.
It’s also worth noting credits are often more valuable than deductions. Deductions reduce your income taxes by shaving a percentage off your taxable income. For example, a particular deduction could reduce your income by $0.50 on every $1.00 of the deduction value. But credits reduce your income on a “dollar for dollar” basis.
So, what are these new energy efficiency credits? Let’s take a look!
Energy-Efficient Home Improvements
Under the Inflation Reduction Act, homeowners are now eligible for Energy Efficient Home Improvement Tax Credits.
Installing energy-efficient windows, skylights, doors, home insulation, heat pumps, central air conditioners, energy-efficient water heaters, and a new furnace could net you $1,200 credit.
The credit applies to the year or years you make the improvements. Thus, it’s worth considering spreading out these improvements over multiple years to maximize the benefits.
In addition to the tax credits, energy-efficient home improvements will save money on your utility bills. And potentially increase your home’s overall value.
Residential Clean Energy
Tax credits are already available for installing solar panels on your home. But under the new law, this credit is extended through 2034. Additionally, the credit value has risen from 26% to 30% if you install panels before year-end 2032.
Also, there’s no cap on this credit. So, if you were to spend $30,000 installing solar panels, you would receive a $9,000 tax credit.
Plus, living in sunny California, solar panels are estimated to pay for themselves in 6-8 years through reduced utility costs.
You can also get additional tax credits for storage batteries, solar water heaters, and residential fuel cells.
Electric Vehicle Charger
You’re eligible for a 30% reimbursement on the home installation of an electric vehicle charger (up to $1,000).
The credit, however, is only available until year-end. Starting in 2023, it’s strictly an option for homeowners living in low-income or rural areas.
Given that California has mandated all new car sales be electric vehicles by 2035, both acquiring an electric vehicle and installing a home charging station are fiscally prudent moves.
Wondering If You Qualify For These Energy Efficiency Tax Credits?
Among the many tax breaks rolled out under the new Inflation Reduction Act, none benefit homeowners more than these energy-efficiency credits.
If you have questions about whether you qualify for any of these credits, get in touch for a FREE consultation!