President Joe Biden will soon sign the Inflation Reduction Act, a sweeping law that will spend billions over the next decade on health care, efforts to combat climate change, and funding to shore up the IRS.
The IRA, as it’s known, won’t actually have a meaningful impact on inflation, according to a widely cited study the University of Pennsylvania released last week. Still, it has a number of benefits that could save money for homeowners and car buyers who want to go green.
Homeowners will receive credits for solar-powered energy purchases such as solar panels; energy-efficient home improvement tax credits; and rebates for energy-efficient appliances. The law also expands a tax credit for electric vehicles, or EVs.
Overall, the White House estimates that families that take advantage of clean energy and EV tax credits could save $1,000 a year — which could be especially helpful as U.S. workers’ wages fail to keep pace with rising inflation.
'Significant changes' for the future
“There are a lot of tax components in this act that might not seem impactful on the surface, but long-term, this act could make significant changes,” Tom O’Saben, director of tax content and government relations at the National Association of Tax Professionals, said in a statement. “The energy incentives should make homes more efficient, helping people save money on their heating and cooling bills.”
The incentives could be welcome news for homeowners, a third of whom have delayed critical home projects, according to Hippo Insurance’s 2022 Homeowners Preparedness Report, which surveyed more than 2,000 homeowners and renters this year.
With the average homeowner surveyed spending around $4,000 a year in home repairs, these green energy credits and rebates will offer relief to homeowners.
Here are the four tax credits and rebates consumers and homeowners can expect.
Electric vehicle (EV) tax credit
Currently, consumers who buy a new EV receive the Qualified Plug-in Electric Drive Motor Vehicle Credit with a maximum $7,500 depending on the capacity of the battery. Prior to the passage of the IRA, though, vehicles from auto makers that had produced more than 200,000 EVs — such as Tesla (TSLA) or GM (GM) — were no longer eligible for the credit.
The new law removes that 200,000 cap, potentially allowing consumers to get credits for buying vehicles from those manufacturers.
The IRA also gives up to a $4,000 tax credit to consumers who purchase a used EV; the law has income thresholds for the amount of credit received on both new and used vehicles.
The nice thing about these credits is that you can choose to get the credit right after you buy the vehicle.
“Instead of waiting to file your tax return, the credit can be obtained at the time you buy the vehicle,” Lawrence (Larry) Pon, a certified public accountant in Redwood Shores, told Yahoo Money.
Some EV manufacturers have argued that too few vehicles will qualify for the credits because of strict rules about where they can be built and where the batteries are sourced, according to Consumer Reports. Still, those families who do end up buying EVs should save about $950 on fuel a year, according to the National Renewable Energy Laboratory.
Clean energy credit for solar panels and solar energy
Currently, there’s a 26% tax credit for solar panels, but the new law would increase it to 30% for the next decade. The law applies retroactively to panels bought starting in 2022, and there’s no cap on the credit or income limitations, according to Pon.
Families that install solar panels will save an estimated $300 a year. This credit can also be used for solar electric, solar water heaters, fuel cells, wind, biomass, and geothermal energy generating systems.
Homeowners can write off the credit when they file taxes, and they should talk to a tax professional about eligibility.
“The credit includes installation costs, but a roof itself doesn’t qualify,” O’Saben said. “Roof shingles with reflective qualities that look like solar panels wouldn’t qualify.”
Homeowners should also watch out for dishonest vendors seeking to exploit the new tax credit.
“Watch out for vendors who tell you installing a new roof would also qualify for the credit or the roof is ‘free’ and all the costs are solar panel costs,” Pon said.
Energy-efficient home improvement tax credits
With extreme heat in the summer and brutal winters increasing utility bills, energy efficiency can save homeowners some money.
The new law will give homeowners a tax credit of up to 30% of the costs of energy-efficient home improvements, including energy-efficient doors, skylights, and windows. However, homeowners can only receive a credit of up to $600 for windows or skylights; $250 for one door; or $500 for multiple doors.
Homeowners can also get credits for certain energy-efficient furnaces or boilers.
Rebates for energy-efficient appliances
Customers can also get rebates, or partial refunds, for buying energy-efficient appliances, which will be awarded through their states.
Consumers who make 80% or less of their area’s median income will get the most benefit, while those making up to 150% of the area median income will get smaller rebates, according to Rob Seltzer, certified public accountant and owner of Seltzer Business Management Inc.
Here are breakdowns for those rebates, according to Seltzer:
Up to $1,750 for a heat pump water heater
Up to $8,000 for a heat pump for space heating or cooling
Up to $840 for an electric stove, cooktop, range or oven or an electric heat pump clothes dryer
Up to $4,000 for a breaker box upgrade
Up to $1,600 for insulation, air sealing and ventilation
Up to $2,500 for electric wiring
Ronda is a personal finance senior reporter for Yahoo Money and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda