2022 Tax Credits and Deductions Homeowners Should Take Advantage of ASAP
Most homeowners are eager to upgrade their homes, but hesitate because of cost considerations. Luckily, there are plenty of tax credits and rebates out there that can lighten your financial burden.
When updating or improving a home, saving energy and money are always top of mind—but when there’s a hefty tax credit at stake, we have to admit, 2022 and 2023 home improvements are even more attractive. What you may not know is that some home improvements are eligible for both tax credits and rebates, which makes any overdue updates around your home a no-brainer. With the passage of the Inflation Reduction Act (IRA) in August, homeowners can also claim some new tax credits and rebates for 2022 on goods and services that promote clean energy and reduce greenhouse gas emissions.
Read on for more information about tax rebates and tax credits, and the types of projects that homeowners can save money on this year and next.
What are tax credits and rebates, and do I qualify for them?
Tax credits are controlled by state and federal governments to incentivize home improvements that conserve energy. Homeowners claim these credits when they’re filing their income taxes. For instance, a tax credit for installing solar panels can put 30 percent of the project cost back in homeowners’ pockets come tax time.
In addition to energy credits, homeowners can claim certain mortgage interest, home equity loan interest (to help pay for those improvements!), property taxes, and private mortgage insurance. Home buyers can claim discount points on a new mortgage. To find out which credits are available to you, visit the Dsire website.
Unlike tax credits, tax rebates on energy-efficient appliances are typically doled out through local power companies and appliance manufacturers in conjunction with the U.S. Energy Star program. To learn about rebates available in your area, visit the Energy Star website. Some of the new incentives provided for in the Inflation Reduction Act include rebates administered by states, and some that are deducted at the time of purchase rather than when you file your taxes. A tax professional can help identify those retroactive credits and specifics by state.
What are tax deductions, and do I qualify for them?
Although some tax deductions and credits already were in place for home improvement and energy savings, the Inflation Reduction Act of 2022 ups the ante for reducing emissions and energy use. The law provides up to $14,000 in rebates and tax credits per household with the goal of lowering Americans’ carbon footprint. Although the act technically takes effect in 2023, it will retroactively include qualifying energy improvements homeowners made in 2022.
Some rebate and deduction amounts vary based on the filers’ income; taxpayers in the lowest income brackets may recoup 100 percent of certain expenditures. The law also offers new rebates for qualifying energy-efficient appliances and heating or cooling units; these rebate programs will be run at the state level. If you’re eyeing a home upgrade or a big purchase and want to know whether it’ll provide you some tax relief, check the White House’s Clean Energy for All for updates.
Energy Star-certified appliances use less energy than older and non-certified appliances: Their certified clothes washers, for example, use 20 percent less energy and 30 percent less water than regular models. The Inflation Reduction Act provides tax relief on the purchase of certified washers, dryers and other appliances such as clothes dryers; the amount of relief homeowners receive depends on their income level.
Some local power companies, too, offer rebates as high as $150 to $400 on purchases of qualified refrigerators, freezers, dishwashers, clothes washers and dryers, dehumidifiers, and air purifiers. Before you shop for new appliances, it’s worth checking the Energy Star Rebate Finder to research available rebates in your area.
2. Doors, Windows, and Skylights
Replacing old, leaky windows, doors, and skylights pays homeowners back—twice. Federal tax credits for these improvements are higher starting next year. The Nonbusiness Energy Property Credit has been renamed the Energy Efficient Home Improvement Credit and will last through 2032. It includes a credit for improving home energy of up to 30 percent of the cost.
Energy-efficient exterior doors will qualify for up to $250 per door, up to a total of $500 for all doors. The annual 30 percent limit for qualifying windows and skylights applies to the products only (not installation) and is $600 per year; these improvements count toward the $1,200 per year limit.
The Inflation Reduction Act credits up to 10 percent of the cost of sealing and insulating your attic, basement, walls, and foundation. Installation costs do not qualify for the home insulation tax credit. Starting next year, the amount of credit homeowners can receive rises to 30 percent. These improvements should save you 15 percent or more a year on your energy bills, and increase interior comfort by eliminating drafts.
Some local utilities also offer rebates of up to $600 (which is often calculated by square footage covered) for installing new or additional insulation. Enter your ZIP code at Energy Star’s Rebate Finder to see if you qualify.
Energy Star says that the average American household owns 24 consumer electronics products, and those gadgets are responsible for up to 12 percent of household electricity use. For the 2022 tax year, taxpayers can score rebates of up to $150 on energy-efficient home electronics, including televisions, digital media players, telephones, computers, and tablets.
Americans bought more than 300 million Energy Star-certified light bulbs in 2020. Switching to energy-efficient light fixtures, ceiling fans, and LED bulbs definitely pays off in lower energy bills, and you may even be able to get a bonus from your local utility company.
If you’ve got redecorating on the brain, be sure to check the “lighting and fans” category under the Energy Star Rebate Finder product list before going shopping. Enter your ZIP code to take advantage of local rebates for light fixtures, fans, and LED bulbs, and learn which specific green products might net you some green in return.
If a new roof for your home is on the horizon, consider installing an energy-efficient metal or asphalt roof. These materials contain pigmented coatings or cooling granules that reduce heat gain and cut down on the amount of air conditioning needed to cool your home by up to 15 percent, thereby saving you cash. Qualified products are eligible for a 2022 tax credit of 30 percent of the cost of the product, up to $500, not including installation.
RELATED: 4 Ways Your Roof Can Save You Energy
7. Heating and Cooling
As much as half of the household energy you use goes toward heating and cooling. That’s why replacing old furnaces, boilers, and air-conditioning units with newer, more efficient models can add up to substantial savings on energy bills. Some replacements already qualify for both tax credits of $150 to $300 and rebates of up to $1,000.
Under the Inflation Reduction Act, households can claim up to 30 percent of the cost of buying and installing a super-efficient heat pump, plus up to $2,000 (up to $4,000 in 2023) in costs associated with the electric system upgrades needed to operate it in your home. In 2023, low- and moderate-income buyers might qualify for the credit at the point of sale, which avoids having to pay all of the costs up front.
8. Water Heaters
Water heaters are big energy hogs. They account for up to 12 percent of the energy used in a typical home, but many newer types of water heaters save both energy and water. Rebates of up to $1,000 are available on qualified heat pump water heaters, solar water heaters, tankless gas models, and select energy-efficient commercial water heaters.
Residential energy tax credits retroactive to December 31, 2022 include up to $300 for homeowners who replace an old water heater with some models of Energy Star-certified gas, oil, propane, or electric heat pumps. Rebates for low-income households under the Inflation Reduction Act may cover up to 100 percent of the cost of efficient heat pump water heaters.
9. Home Office Equipment
With so many Americans now telecommuting and working flexible schedules, more and more Americans have carved out designated home offices. Those who work at home and are self-employed or independent contractors are eligible for a home office tax deduction and certain office equipment write-offs.
Unfortunately, since 2018, telecommuting employees no longer qualify for the deduction. Still, remote workers who purchase certain computers and monitors may qualify for rebates of up to $15 from their local utility companies.
10. Renewable Energy Sources
The Inflation Reduction Act allows homeowners to claim up to 30 percent of the cost of adding certain solar, wind, geothermal, and similar technologies to their homes. The solar tax credit 2022 also covers some costs of batteries for renewable energy storage. The renewable energy credits have no income restrictions and last (retroactively) from January 1, 2022, through 2032.
11. Electric Vehicles
Under the Inflation Reduction Act, buyers of certain electric vehicles are eligible for a tax credit: EV owners can get up to $4,000 in EV tax credit in 2022 for a used electric vehicle and $7,500 for a new one. For now, the credit goes on your tax return. Beginning in 2024, however, the dealer from which you purchase the car will issue the credit at the time of the vehicle sale. In addition, the IRA reinstated a credit of up to 30 percent of the cost of a home EV charger.
Not all electric vehicles qualify for tax credit under the new program. Check to ensure the vehicle you want qualifies; there are requirements about final assembly and battery sourcing in North America to encourage domestic production. The act does not apply to all income levels, so check income limits and the vehicle price cap before you purchase.
12. Necessary Home Improvements
One of the greatest incentives in the Inflation Reduction Act is the suspension of a lifetime credit. In the past, once a taxpayer hit their maximum of $1,200 in qualifying credits, they were done. The IRA makes it easier to replace items as they break with more efficient alternatives or to spread the cost of home (and energy) improvements over several years, with a $1,200 credit available annually.
In addition to credits for replacing appliances and systems in a home, an upgraded breaker box qualifies under the Inflation Reduction Act for a tax credit of up to $4,000 if its purpose is to prepare for conversion to an all-electric home.
13. Electric Stoves
Although plenty of energy-efficient appliances qualify for credits or rebates in the Inflation Reduction Act, electric induction stoves are getting some special attention. Recent studies have found that gas stove emissions not only impact climate change, but also have raised health concerns. Poor ventilation when cooking is one concern, but up to three-fourths of the methane emitted by gas stoves comes out when they are not even in use.
Homeowners who replace a gas stove with an electric range or cooktop are eligible for rebates of up to $840. The law also provides an additional $500 credit to reduce the costs of switching from natural gas or propane to electric cooking power.
14. Home Energy Audit
If you want to make smart decisions about how to use tax credits, rebates, and your hard-earned money, a home energy audit makes sense. Unless you already have plenty of smart-home features, it’s tough to troubleshoot high energy use. The Inflation Reduction Act provides a credit of up to $150 for those who have a home energy audit conducted by an inspector.
To keep a better handle on costs long-term, invest in a smart thermostat to monitor and control heating and cooling energy. Many energy companies offer mail-in rebates of $100 or more for those who purchase and install smart thermostats.