Americans looking to make energy-efficient home improvements are poised to receive millions of dollars in tax breaks with the passage of the Inflation Reduction Act of 2022.
The legislation has a $1,200 annual tax credit for green remodeling, up from what had been a $500 lifetime cap.
The potential tax savings for homeowners, thanks to the expanded credit under the energy bill, would be an estimated $1.6 billion in 2023 alone, up from an estimated $253 million in 2022 for the old credit, according to Congressional Budget Office estimates.
The $500 tax credit, which expired at the end of 2021, is reinstated for 2022. The new revamped tax credit would then be effective January 1, 2023 through 2032. There is a higher $2,000 credit limit for heat pumps and biomass stoves.
By making it annual, homeowners can budget out different energy-efficient upgrades over a 10-year period. For example, insulation one year and windows and doors another.
A credit, unlike a deduction, reduces your tax bill dollar-for-dollar. Taxpayers can’t carry over unused credits to future years. The improvements have to be made to a primary residence, not a second home.