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For tax returns after 2022, taxpayers are encountering a host of new and modified credits related to “green energy.” The Inflation Reduction Act of 2022 added some new credits, and modified others, mostly to make them more generous.
Green energy tax credit for individuals
New and modified green energy tax credits for individuals fall into two broad categories:
- Tax credits for clean vehicles, and
- Tax credits for home improvements.
Clean vehicle credits for individuals
Individual taxpayers may be able to claim three credits related to clean vehicles:
- The new clean vehicle credit
- The used clean vehicle credit
- The alternative fuel refueling property credit
Clean vehicles are qualified electric and fuel cell vehicles. Among other requirements, the vehicle must have four wheels, be made by a manufacturer, and be used predominantly in the United States. A qualified electric vehicle must have a battery with a capacity of at least seven-kilowatt hours.
The used clean vehicle credit applies to qualified fuel cell or clean electric vehicles at least two years old. The nonrefundable credit is 30% of the cost of the previously owned vehicle, up to $4,000. Among other restrictions on this credit, in order to qualify, the buyer isn't allowed to have used the credit during the three years preceding the purchase or qualify as another taxpayer’s dependent. Read more about the used clean vehicle credit.
The new clean vehicle credit applies to qualified clean vehicles acquired before Jan 1, 2033. Final assembly must occur in North America. The $7,500 credit has two components: a $3,750 credit applies if the vehicle satisfies domestic content requirements for critical minerals in the battery, and a $3,750 credit applies if the vehicle satisfies domestic content requirements for battery components. Read more about the new clean vehicle credit.
Note from the editorial team: The new clean vehicle credit is generally treated as a nonrefundable personal credit. However, to the extent the credit is attributable to depreciable property (that is, property used for business or investment purposes), it is part of the general business credit.
The alternative fuel refueling property credit applies to property that stores or dispenses clean fuel or recharges electric vehicles. The credit is generally equal to 30% of the cost of non-depreciable property installed on the taxpayer’s principal residence, but the credit for any single item of property is limited to $1,000.
This is one of the few green credits that the IRA made more restrictive. Now, qualified property must be installed in an eligible census tract (a low-income or non-urban area).
Note from the editorial team: As with the new clean vehicle credit, the alternative fuel refueling property credit is generally treated as a nonrefundable personal credit. However, to the extent the credit is attributable to depreciable property (that is, property used for business or investment purposes), it is part of the general business credit.
Residential credits for individuals
Individuals who make energy-related home improvements may qualify for the energy-efficient home improvement credit and the residential clean energy credit, both of which are substantially modified versions of older credits.
The energy-efficient home improvement credit is an annual credit that applies to qualified energy efficiency improvements (building envelope improvements), qualified residential energy property (specified types of energy equipment), and home energy audits. The credit is generally equal to 30% of the cost of qualified energy efficiency improvements, qualified residential energy property, and home energy audits on existing homes.
However, several limits apply to the annual credit, including limits for each type of improvement and limits on the total credit. In addition, after 2024 the taxpayer’s return must include the manufacturer’s unique product identification number (PINs) for exterior doors, exterior windows, and qualified energy property. Read more about the energy-efficient home improvement credit.
The residential clean energy credit applies to solar water heating, solar electric, fuel cell, small wind energy, and geothermal heat pump property, as well as battery storage technology on new and existing homes. The credit is generally 30% of the cost of the qualified property placed in service and is limited to new property (the credit cannot be taken on refurbished or second-hand property). Read more about the residential clean energy credit.
