Inflation Reduction Act Tax Incentives
Inflation Reduction Act Tax Incentives
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TAX CREDITS
New Electric Vehicle: 30D (Up to $7,500 Available Now)
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Working families will be able to use tax credits that make electric vehicles more affordable. Purchasing an electric vehicle (EV) can save families thousands of dollars on fuel costs over the life of their car. Over their lifetimes, EVs have smaller carbon footprints than gasoline cars and can be plugged into the same type of outlet as your toaster. When you need a charge on the road, there are 53,000 publicly available charging stations across the U.S.
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Qualifying buyers are limited to individuals with a modified adjusted gross income (MAGI) less than $150K (or $300K for joint filers).
Qualifying vehicles must have a Manufacturer Suggested Retail Price (MSRP) of less than $55K (or $80K for vans, SUVs, or pick-up trucks), and meet certain battery manufacturing and component criteria. Note: if you take possession of a new clean vehicle on or after April 18, 2023, it must meet critical mineral and battery component requirements to qualify for the credit.
For Vehicles Purchased and Delivered in 2022: Visit this website to see which EVs are eligible.
For Vehicles Purchased and Delivered in 2023 and Later: Visit this website to see which EVs are eligible. This is a list based on information provided by vehicle manufacturers and will be updated.
For more information on the qualification requirements, visit this IRS website.
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To claim the credit, file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles) with your tax return.
Beginning in 2024, taxpayers have the option to transfer this tax credit as a “point of sale rebate” by a dealership to directly lower the price of the vehicle by the credit amount at the time of purchase. This is big news for families who may want to invest in an EV but face financial barriers. We will update this website as point-of-sale rebate guidance from the IRS is released.
Used Electric Vehicle: 25E (Up to $4,000 Available Now)
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Beginning January 1, 2023, if you buy a qualified used electric vehicle (EV) or fuel cell vehicle (FCV) from a licensed dealer for $25,000 or less, you may be eligible for a used clean vehicle tax credit (also referred to as a previously owned clean vehicle tax credit). The credit equals 30% of the sale price up to a maximum credit of $4,000.
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Qualifying buyers are limited to individuals with a modified adjusted gross income (MAGI) less than $75K (or $150K for joint filers).
Qualifying vehicles must have a MSRP of less than $25K, weigh less than 14,000 pounds, and be at least two years old (model year must be at least 2 years older than the year of sale.)
Find a list of qualified vehicles here.
Purchases must be made through a dealer who is licensed to sell motor vehicles.
Required information includes:
- Dealer's name and taxpayer ID number
- Buyer's name and taxpayer ID number
- Sale date and sale price
- Maximum credit allowable under IRC 25E
- Vehicle identification number (VIN), unless the vehicle is not assigned one
- Battery capacity
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To claim the credit, complete Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles and New Clean Vehicles), and file it with your tax return for the year you took possession of the vehicle.
Beginning in 2024, taxpayers have the option to transfer this tax credit as a “point of sale rebate” by a dealership to directly lower the price of the vehicle by the credit amount at the time of purchase. This is big news for individuals who may want to invest in an EV but are faced with financial barriers. We will update this website as point-of-sale rebate guidance from the IRS is released.
Leased Electric Vehicle: 45W (Up to $7,500 Available Now)
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Leasing an electric vehicle is an additional option consumers can use to take advantage of the Inflation Reduction Act benefits. Through the Commercial Clean Vehicle Tax Credit, businesses that lease electric vehicles (such as dealerships) are eligible for a clean vehicle tax credit of up to $7,500 for qualified vehicles with gross vehicle weight ratings of under 14,000 pounds. Businesses can subsequently pass this credit on to the lessee through lower monthly costs. For more information on leasing a clean vehicle, visit this IRS website.
ELIGIBILITY________________________________________________________________________________________________________________________________________
Qualifying recipients are businesses and tax-exempt organizations, or individuals who lease a qualified vehicle from such business or organization.
Qualifying vehicles are listed here.
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The tax incentives for leased vehicles are provided to the dealer, who may pass on the consumer benefits to the lessee through reduced leasing costs. If you are leasing an electric vehicle, you can request information from the dealership on how tax incentives from the Inflation Reduction Act are passed on to you, the customer.
Electric Vehicle Charger: 30C (Up to $1,000 Available Now)
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The Inflation Reduction Act incentivizes businesses and homeowners to install EV chargers by expanding the existing tax credit known as the Alternative Fuel Vehicle Refueling Property Credit (30C) and extending it for 10 years. Level 2 residential EV chargers pull electricity from a 240V outlet and can charge your EV overnight, whereas Level 3 public chargers can charge EVs in as little time as 20 minutes.
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Homeowners residing in eligible lower-income or rural census tracts can get a tax credit of 30% of the cost of installing a home EV charger on their property—up to a maximum of $1,000.
Equipment must be installed in locations that meet the following census tract requirements:
- The census tract is not an urban area;
- A population census tract where the poverty rate is at least 20%; or
- Metropolitan and non-metropolitan area census tract where the median family income is less than 80% of the state medium family income level.
Further, beginning in 2023, the tax credit for businesses and home installations applies to other EV charger equipment like bidirectional (two-way) chargers that turns your car battery into a backup power source for your home. This credit could also help renters by encouraging apartment complexes and other businesses to install EV chargers for residents and customers.
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To claim the credit, complete Form 8911, Alternative Fuel Vehicle Refueling Property Credit, and file it with your tax return for the year you placed the EV charger in service. You will need your receipt to show the purchase price of the EV charger and any fees for installation of the charger.
Residential Clean Energy Tax Credit: 25D (30% Available Now)
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Rooftop solar is covered under the 25D tax credit and provides households an uncapped 30% tax credit. The cost of solar panel installation depends on a number of factors, such as your home and solar panel size, and where you live. Those who upgrade their electrical panels in conjunction with rooftop solar are also eligible for a 30% uncapped tax credit.
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This 30% credit applies to purchase and installation costs for:
- Solar panels
- Solar water heaters
- Fuel cell property expenditures
- Small wind turbines
- Geothermal heat pumps
- Battery storage systems
The amount of the credit you can take is a percentage of the total improvement expenses in the year of installation with no annual maximum or lifetime limit:
- 30% for 2022 - 2032
- 26% for 2033
- 22% for 2034
In low-income or energy communities, community solar and leased rooftop solar developers may be able to access additional 10% or 20% bonuses. Rather than directly qualifying for these bonuses, homeowners may benefit from them through leasing or subscription community solar models.
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For more information, check out this IRS FAQ on the 25D tax credit, this ENERGY Star Guide on qualifying purchases, and this Department of Energy guide to the Rooftop Solar tax credit.
Energy Efficient Home Improvement: 25C (Up to $3,200 Available Now)
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The Inflation Reduction Act significantly expands and extends the 25C tax credit, now known as the Energy Efficient Home Improvement Credit. Previously, this tax credit was limited to 10% of your project costs but is now increased to up to 30% and available on an annual basis. After January 1, 2023, qualified energy-efficient improvements to your home may qualify you for tax credits worth up to $3,200.
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You may claim the energy efficient home improvement credit for improvements to your main home. Your main home is generally where you live most of the time. You can't claim the credit if you're a landlord or other property owner who doesn't live in the home.
For the energy efficiency home improvement credit, the home must be:
- Located in the United States
- An existing home that you improve or add onto, not a new home
Homeowners can claim up to $2,000 for heat pumps, heat pump water heaters, or biomass stoves. Upgrade costs eligible for the credit can include equipment, installation, and labor costs.
Homeowners can also claim up to $1,200 for other weatherization installs and energy-efficient improvements including up to:
- $150 for a home energy audit
- $250 for a new exterior door ($500 total for all exterior doors)
- $600 for new exterior windows and skylights
- $1,200 for insulation
- $600 for an upgraded electrical panel.
For more information, check out this IRS FAQ on the 25C credit and this ENERGY Star Guide on qualifying purchases.
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File Form 5695, Residential Energy Credits Part II, with your tax return to claim the credit. You must claim the credit for the tax year when the property is installed, not merely purchased.
Electrification Rebates:
The Inflation Reduction Act includes $8.8 billion in rebates for home energy efficiency and electrification projects, which is expected to save American households up to $1 billion annually. This legislation provides point-of-sale discounts to low- and moderate-income households across America to electrify their homes. When households make qualifying electrification purchases, they will receive these rebates as immediate, off-the-top discounts. We will update this website as the Department of Energy and state energy offices implement each rebate that will provide clarity on final rebate amounts, eligibility, and timelines.
High-Efficiency Electric Home Rebate HEEHRA (Up to $14,000, Rollout Timing TBD)
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Americans can save hundreds of dollars on their energy bills by electrifying their homes, but may be daunted by the high upfront costs. Through the High-Efficiency Electric Home Rebate Act (HEEHRA) program, the new law allocates funding to help low- and moderate-income households reduce their energy bills.
State energy offices will administer the program, which provides rebates on ENERGY STAR-certified appliances and other home electrification projects. It may take 1-2 years to get the program up and running in each state.
Please note that homeowners can only receive a rebate from either the HEEHRA or the HOMES program (additional information below)—not both. However, it is expected that homeowners will be eligible, pending DOE guidance, to combine both a rebate from either of these two rebate programs with an energy efficiency tax credit at the same time.
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Qualifying Households:
- Low-income households (<80% of their Area Median Income (AMI): 100% rebate of the purchase and installation costs for qualified electrification projects.
- Moderate-income households (80-150% of their Area Median Income): 50% rebate of the cost of home electrification projects.
The maximum allowable rebate amount for qualifying upgrades is $14,000 and includes:
- Heat Pump Air Conditioner/Heater (Up to $8,000)
- Heat pumps both heat and cool your house, so it replaces both your traditional air conditioner and home heating system (such as a furnace or boiler).
- Heat Pump Water Heater (Up to $1,750)
- Heat pump water heaters use electricity to move heat from one space to another instead of generating the heat directly.
- Electric/Induction Stove, Range, or Oven (Up to $840)
- There are two types of electric stoves: traditional electric resistance stoves and modern induction stoves. An electric stove sends electricity into a resistive coil that radiates heat to your pan. Induction cooking is performed on an electric stove using energy transferred through a magnetic field directly to the cooking pan.
- Heat Pump Clothes Dryer (Up to $840)
- Heat pump clothes dryers sends air through an evaporator that will remove moisture, rather than releasing humid air through a traditional dryer vent.
- Upgraded Electric Panels (Up to $4,000)
- Inefficient or outdated electric panels cannot supply power to new appliances when existing circuits cannot handle the additional load. Upgrading electric panels, especially in older homes, would greatly reduce the risk of electrical fires due to an overload and allow for the system to work more efficiently.
- Upgraded Electric Wiring (Up to $2,500)
- Electric wiring upgrades with higher voltage outlets is often required for a number of electric appliances, such as EV chargers, induction stoves, and most heat pumps.
- Weatherization (Up to $1,600)
- Weatherization of your home includes air sealing, ventilation, and insulation upgrades to make your home more energy-efficient.
Home Owner Managing Energy Savings Rebate HOMES (Up to $8,000, Rollout Timing TBD)
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The Inflation Reduction Act will allocate funds to help American families undertake comprehensive energy-efficient home improvement projects through the Home Owner Managing Energy Savings (HOMES) rebate program. These rebates will benefit households that have undergone energy efficiency retrofits with modeled or verifiable minimum energy use reductions. State energy offices will provide additional guidance on the HOMES rebate program and we will update this website as rebates become available to homeowners.
Please note that homeowners can only receive a rebate from either the HEEHRA or the HOMES program—not both. However, it is expected that homeowners will be eligible, pending DOE guidance, to combine both a rebate from either of these two rebate programs with an energy efficiency tax credit at the same time.
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Unlike the HEEHRA program, the HOME rebates program is not income restricted but is rather based on the modeled or measured energy savings from your energy efficiency upgrades.
Qualifying Households:
The energy-saving incentive tiers are as follows:
- Retrofits with modeled energy system savings of 35% or more: the lesser of $4,000 or 50% of project costs.
- Retrofits with modeled energy system savings of 20-34%: the lesser of $2,000 or 50% of project costs.
- Retrofits with measured energy savings of 15% or more: the lesser of $100 per percent of energy saved or 50% of project cost.
Incentives for low-income households (less than 80% of Area Median Income) are doubled, or up to 80% of project costs.
Additional Resources:
- White House Clean Energy for All
- DOE’s Guide to Investing in America for Homeowners, Renters, and Drivers
- IRS' Guide to Credits and Deductions Under the Inflation Reduction Act of 2022
- Energy Star Guide to Federal Income Tax Credits and Incentives for Energy Efficiency
- Taxpayer Advocate Resource on the Inflation Reduction Act
Note: This resource page was compiled to raise awareness of new clean energy and electrification incentives for constituents and is not intended to substitute for professional financial advice.