We are already getting a lot of questions about the various energy-related tax credits. Below you will find a summary to help you complete your tax portals this year.
Understanding how non-refundable tax credits work
First, let's delve into the concept of non-refundable tax credits and the difference between tax liability and refunds:
- Tax Liability - the total amount of owed to the IRS based on your income, deductions, and other factors. It is the initial calculation of the amount owed before any estimated payments or withholding are applied.
- Non-refundable Tax Credit - limited to reducing your tax liability to zero; any excess credit beyond that point does not contribute to a refund.
- Refund - An overpayment of tax liability as compared to your estimated payments, withholding or tax credits.
Here is an example to help illustrate the points above:
- Sarah's Tax Liability: $800
- Non-refundable Tax Credits: $900
- Remaining tax liability: $0 ($800 - $800)
- Sarah's final outcome: Her tax liability is reduced to zero, but since her liability is zero, she would receive a refund for any money withheld from her paycheck or any estimated tax payments made.
Vehicles
Despite car dealerships claims, not everyone gets a credit - here are some specifics:
One -You cannot take the credit if your income exceeds:
- Married filing jointly - $300,000
- Single or Married filing separately - $150,000
Two - Vehicles are not eligible if MSRP exceeds:
- $80,000 for vans, pickup trucks, and sport utility vehicles
- $55,000 for other vehicles
Three - To qualify the final assembly of the vehicle must take place in North America. To check if you vechical qualifies use THIS WEBSITE.
Four - The credit based on two separate requirements:
- $3,750 credit if the minimum percentage of minerals contained in batteries is sourced in U.S. or a country with a free trade agreement
- $3,750 credit if the minimum percentage of the value of battery components is manufactured or assembled in North America
Home Improvements
If you make qualified energy-efficient improvements to your home after Jan. 1, 2023, you may qualify for a tax credit. You can claim the credit for improvements made through 2032. Beginning Jan. 1, 2023, the credit equals 30% of certain qualified expenses, up to the annual maximum credit:
- Renewable energy for your home such as solar, wind, geothermal, fuel cells or battery storage technology qualify for an annual residential clean energy tax credit (RCEC):
A. The ECEC equals 30% of the costs of new, qualified clean energy property for your home installed through 2032.
B. You can carry forward any excess unused credit ECEC and apply it to reduce the tax you owe in future years.
- $1,200 for energy property costs and certain energy-efficient home improvements, with limits on doors ($250 per door and $500 total), windows ($600) and home energy audits ($150). Residential energy property must meet the Consortium for Energy Efficiency (CEE) highest efficiency tier, not including any advanced tier, in effect at the beginning of the year when the property is installed qualifies for a credit up to $600 per item. Costs may include labor for installation.
- $2,000 per year for qualified heat pumps, biomass stoves or biomass boilers with a thermal efficiency rating of at least 75%
You may claim the energy efficient home improvement credit for improvements to your main home where you live most of the time. The home must be:
- Located in the United States
- An existing home that you improve or add onto, not a new home
