By Charlestien Harris
In celebration of St. Patrick’s Day and the “wearing of the green” this March, I’ve chosen to focus on the theme of “going green.” But what does it mean to go green? In essence, it involves adopting methods and processes that safeguard the environment, such as recycling, reducing car usage, and enhancing home insulation for decreased energy consumption.
According to the U.S. government, the Inflation Reduction Act aims to reduce carbon emissions by approximately 40 percent by 2030, with a primary objective of making the transition to a greener lifestyle more affordable. Going green not only benefits the planet but also holds significance for personal finances. An excellent example of this concept is the ability of consumers to power their homes with solar or wind energy, leading to cost savings and reduced air pollution.
Now, let’s explore some tax credits that can facilitate this transition and help save money simultaneously.
- Purchasing an Electric Vehicle Credit: Residents meeting income requirements and buying an electric, plug-in hybrid, or hydrogen fuel cell vehicle may qualify for a government credit of up to $7,500. This assistance applies if the vehicle costs below a specified amount, is assembled in North America, and features a battery made with minerals mined or recycled on the continent. The credit now extends to “clean” pre-owned autos, allowing buyers to save 30 percent of the sale price, up to a maximum of $4,000, on used vehicles meeting specific criteria.
- Home Efficiency Improvement Credit: Starting in 2023, homeowners can access a 30 percent tax credit for eligible home improvements like efficient windows, skylights, exterior doors, boilers, and other energy-efficient items. The maximum annual payout depends on the item, with a cap of $1,200, resetting every year until the credit expires in 2032. This new credit replaces the Nonbusiness Energy Property Credit and is more generous, offering a 10 percent credit up to a lifetime maximum of $500. Ensure you research and adhere to any restrictions and limitations.
- The Residential Clean Energy Credit: Extended until 2034 under the Inflation Reduction Act, the Residential Clean Energy Credit (formerly Residential Energy Efficient Property Credit) supports the installation of solar, wind, geothermal, and biomass renewable energy on more favorable terms. The credit now allows up to 30 percent until 2032, followed by a gradual reduction to 22 percent in its final year. As of 2023, the incentive also covers battery storage technology with a capacity of at least three kilowatt-hours. Additionally, the Inflation Reduction Act established two rebate programs primarily designed to assist low- and middle-income families.
- High-Efficiency Electric Home Rebate Program: This program provides rebates to households earning less than 150 percent of their local area’s median income, purchasing energy-efficient electric appliances. Rebates cover items like heat pumps, electric stoves, or heat pump clothes dryers. Eligible households with income below 80 percent of the median can claim a rebate for the full cost of upgrades, up to $14,000, while those in the 80 to 150 percent range qualify for rebates covering half the costs.
- The HOMES Rebate Program: Designed for low-to-moderate income households, the HOMES program rewards homeowners for reducing energy consumption through home modifications. Rebate amounts depend on household income and the degree of energy consumption reduction, ranging from $2,000 for a 20 percent reduction to $4,000 for over a 35 percent reduction. Lower-income families, earning 80 percent less than their local area’s median income, receive doubled rebate limits.
The Inflation Reduction Act of 2022 has the potential to save households a significant amount of money. By qualifying for these credits, consumers could receive substantial refunds and possibly enjoy lower electricity, heating, and car fuel bills. Beyond financial benefits, consumers contribute to improved air quality, reduced climate changes, and a better planet for future generations.
For additional information on this and other financial topics, visit our blog at banksouthern.com/blog, email me at Charlestien.Harris@banksouthern.com, or call me at 662-624-5776.
Until next week – stay financially fit!