President Joe Biden signed the Inflation Reduction Act of 2022 (IRA) in August, a major climate bill that the House and Senate passed that will have significant implications for clean energy use in the United States. The bill seeks to boost energy security, decrease energy prices, and slow climate change.
The IRA will invest $369 billion in climate and clean energy solutions. While much of the money is intended to support investments in clean energy, EV charging, and sustainability investments in underserved communities, for example, incentives are also available to individuals or households for installing energy-saving appliances, going solar, getting heat pumps, or buying an electric vehicle. If you are a renter, notify your landlord about opportunities to save on energy-efficient appliances, solar systems, and heat pumps.
What Is The Climate Bill?
The Inflation Reduction Act aims to decrease U.S. greenhouse gas emissions by decarbonizing the economy to reach about 40% below 2005 emissions levels by 2030. In the process, the U.S. will ideally create domestic manufacturing jobs and dramatically reduce the consumption of fossil fuels. Specifically, the IRA strives to empower disadvantaged communities to take advantage of government incentives that will lower energy costs, allowing all Americans to benefit from the transition to clean energy. To date, going solar and buying a new EV have been options for middle and upper-income Americans.
Some of the funding from the climate bill will be available as clean energy tax credits or refunds for purchasing EVs and energy-saving home upgrades like installing heat pumps. Likewise, there are grants for specific purposes, for supporting reduced diesel emissions, clean heavy-duty vehicles, and air pollution in schools.
How to Take Advantage of Incentives in the Climate Bill
Let’s explore some of the opportunities that the bill creates. We recommend speaking with a tax expert to ensure you qualify for the EV or solar tax credits.
Changes to Tax Credits for New EVs
The IRA amends the clean vehicle tax credit for electric vehicles, adding some provisions that make the credits more complicated. The good news is that the $7,500 EV tax credit will remain in effect through 2032, albeit with some changes.
After the IRA, more plug-in hybrids are eligible for the full $7,500 tax credit. However, the climate legislation will soon require the vehicles to be assembled in North America, limiting which automakers and models qualify. This is intended to encourage carmakers to move production onshore. The Department of Energy’s Alternative Fuels Data Center released a list of clean vehicles that will likely meet the new criteria. But be careful because the country where electric vehicles are assembled can vary even within the same model. A VIN decoder will help you verify where the automaker built the vehicle.
Previously, there was a limit on automakers that had met a given sales cap, which included Tesla and General Motors, effectively limiting the number of subsidized cars sold each year. The IRA’s goal is a comprehensive transition, so effective January 1, 2023, the cap is eliminated. Next year, American-made Chevy Bolt, Cadillac Lyric, GMC Hummer, and Tesla Model 3, S, X, and Y will qualify for a $7,500 tax credit starting January 1, 2023. The new restrictions on where major vehicle components originate may be a challenge for General Motors and Tesla, which build cars globally.
In addition, to qualify for the EV tax credit rules, the price of new SUVs and pickups cannot exceed $80,000 and $55,000, respectively. So, some Lucid, Rivian, Porsche, GMC Hummer, Ford F-150 Lightning, and Tesla models, among others, will not be eligible for the tax credit. Also, there are new limits on personal income to qualify for the tax credit: $150,000 for individuals and $300,000 for couples.
Used EVs Will Soon Be Eligible for Tax Credits, Too
Pre-owned vehicles make up the lion’s share of automotive sales in the U.S., and currently, used EVs are not eligible for the federal tax credit. Many will soon qualify for tax credits of up to $4,000 or 30% of the vehicle cost, whichever is less.
But, there are some stipulations, such as that the vehicle must be purchased through a licensed dealer for $25,000 or less and have been in service for at least two years. The used EV tax credit will take effect in 2024 and has an income cap for eligibility of $75,000 or less for single filers and $150,000 for joint filers.
Increasing the Residential Solar Tax Credit to 30%
Before the bill passed, the federal solar tax credit was going to taper down to 22% in 2023. However, the climate bill raises it back to a 30% tax credit through 2032, starting with solar energy systems installed in 2022. The taper-down will begin again in 2033, falling to 26% and then 22% in 2034.
Incentives for Home Energy Efficiency
There are also rebates for energy-saving appliances, including air conditioners, induction stoves, and dryers, and these programs are operated by states, not issued at a federal level. The value of the rebates varies depending on how your income compares to the median state income. If you earn up to 80% of the state median income, you can get up to 100% back in rebates. These programs will become available as your state gets them up and running.
Also, there will be a new $2,000 tax credit available for installing a heat pump. In addition to the tax credit, those who meet state income caps can qualify for up to $8,000 through their state rebate program.
The climate bill creates new opportunities for households to reduce their energy consumption. If you are a renter, tell your landlord about the incentives and let them know if you have suggestions for energy-saving improvements that qualify, like heat pumps or efficient appliances. In addition to lower utility bills, these improvements can reduce your fossil fuel consumption and greenhouse gas emissions.
The IRA opens a broad range of new options for making changes to your carbon impact. This article can help you identify where to start saving money but do check carefully and consult a professional to make sure you qualify for tax credits.