NerdWallet: Make the most of these new tax credits for home-energy improvements — plus, how to finance them

by | Apr 10, 2023 | Stock Market

This article is reprinted by permission from NerdWallet.  If you’ve been holding off on home improvements, a new law signed last year and in effect as of Jan. 1, 2023, may provide a fresh incentive. 

The Inflation Reduction Act, or IRA, includes tax credits and rebates for homeowners who make energy-saving updates to their homes. Credits for improvements like new solar panels, windows, doors and air conditioners are available now, while rebates for larger energy-efficient updates are expected to become available later this year or next year. Here’s what to know about these perks, plus tips to plan your projects.Tax credits for smaller updates The IRA includes tax credits for around-the-house eco-friendly updates. Eligible purchases include energy-efficient windows, doors, insulation, central air conditioners and home energy audits. An IRS fact sheet outlines eligible home improvements. Tax credits reduce your tax liability for the year, says Los Angeles-based certified public accountant Michael DiBernardo. For example, a $500 credit lowers your taxes owed by $500. The IRA allows homeowners a 30% tax credit for some energy-efficient updates, capped at $1,200 per year. There’s also a $2,000 credit for heat pumps, heat pump water heaters and biomass stoves. Make the most of it: Combining projects — like new insulation and a heat pump — can get you up to $3,200, says Kara Saul Rinaldi, president and CEO of the energy and environmental strategy firm AnnDyl Policy Group and an advocate of policies that helped shape the IRA. Keep receipts for each eligible update and add them to your tax forms, Saul Rinaldi says. Plus: If you haven’t filed your taxes yet, here are 11 last-minute tips to helpIncreased credits for solar panels The IRA also increased the credit for solar installations. Homeowners can get a tax credit for 30% of the cost to buy and install solar panels — up from the previous 26%. And there’s no dollar limit. If you pay $15,000 to put solar panels on your house, you can claim a $4,500 tax credit. Any unused credit carries to future years, so if you don’t owe taxes this year, you can use it later. Make the most of it: The tax credit will reduce the cost of going solar, but if your goal is to lower your utility bill, first determine when you’ll see savings. Th …

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