2023 Energy Tax Credits

In less than two months’ time, we will start to file 2023 tax returns.  Now is as good a time as ever to share information on some of the tax credits available to taxpayers.  Hopefully some of the notes I took from my recent professional continuing education and summarized below will spark your memory if you did anything that qualifies during 2023. This is not an exhaustive list, and it is imperative that you complete the tax organizers we send in January to ensure that credits are not missed.

Energy Efficient Home Improvement Credit (IRC Sec 25C) (Form 5695)

• Think of these as the improvements inside your house such as windows, doors, insulation, central air, furnaces, and boilers.
• There are essentially two sub credits within this credit. One for windows/doors/insulation and one for furnaces, boilers, and heat pumps.  In the first category, you don’t include installation costs in calculation of the tax credit, but in the second category you do.
• Tax credit is now 30% of the project cost.
• Has a typical annual dollar limit of $1,200 tax credit per year (used to be $500 lifetime credit)
• Nonrefundable tax credit with no carryover to future tax years.
• Homes include boats, RV’s, mobile homes, co-operative apartments, and condos.
• New construction does not qualify. Roofs no longer qualify.
• Windows/Doors/Insulation have some limits.
• windows annual credit is limited to $600
• doors credit is limited to $250 each.
• Both must be used at primary residence and not a secondary residence.
• Heat Pumps/Water Heaters/Woodstoves have different limits
• Max credit higher in some circumstances (As high as $3,200)
• Can include labor and can be second home.

Planning Idea – you may want to stagger projects.  For instance you may want to do insulation one year, and windows another year to take advantage of the $1,200 tax credit annual limit.

Residential Clean Energy Credit (IRC Sec 25D)

• Think of these as the credits outside your house and it includes solar, wind, geothermal, and batteries.
• No dollar limit on the credit. 30% of qualified costs.
• New construction and installation qualifies as part of the credit (must be primary home)
• Batteries must have at least 3 kWh if storage to qualify.

Clean Vehicle Credit (IRC Sec 30D)

• $7,500 credit for 2023-2032 new car purchases.
• Car must be assembled in the United States
• Plug in hybrids may also qualify.
• 4 wheel vehicles for US highway use (no golf carts)
• Nonrefundable Credit and no carryforward!
• Has adjusted gross income limits in year or delivery or prior year. ($150k single/$300k married filing jointly).

Previously Owned Vehicle Credit (IRC Sec 25E)

• Used electric cars qualify at lesser of $4,000 or 30% of cost
• Vehicle must cost $25k or less and come from a dealer.
• Can only claim the credit once every 3 years.
• Businesses do not qualify.
• Lower AGI limits of $75k single/$150k married filing jointly

Qualified Commercial Clean Vehicle Credit (IRC Sec 45W)

• Unlike the Clean Vehicle Credit, the vehicle does not need to be assembled in the United States and there is no AGI limitation
• Carryforward credit is allowed.
• Buy the car through the business