February 24, 2024
How a tax rebate of up to ,200 could help heat your home more efficiently this winter

  • The Inflation Reduction Act extended and expanded pre-tax credits for home efficiency upgrades.
  • The Energy Efficient Home Improvement Tax Credit is worth 30% of a project’s cost, up to a dollar limit.
  • Tax exemptions help homeowners save money on upgrades and future heating and cooling bills.

Steve Smith Tetra Images | getty images

Winter is almost here, which means the coldest temperatures of the year are not far away.

But homeowners can take advantage of recently implemented tax breaks to help increase their home’s efficiency, which will trap more heat indoors and better insulate them from the winter cold – and keep their money in the process. Avoid.

The Energy Efficient Home Improvement Tax Credit, proposed by the Inflation Reduction Act, could help homeowners defray costs on such projects – such as installing energy-efficient insulation, windows, doors and electric heat pumps – while reducing the size of future heating. There is also a possibility of reducing the bill, experts said. It costs a maximum of $3,200 per year.

More than personal finance:
Are gas-powered or electric vehicles a better deal? EVs may benefit in the long run
Consumers could soon get energy rebates of $14,000 or more if states sign on
Why climate change could cost you big bucks – and what to do about it

According to the U.S. Department of Energy, the average American spends $2,000 on energy bills each year, and $200 to $400 can be “wasted” due to drafts, air leaks around openings, and outdated heating and cooling systems.

The agency said that 45% of the average person’s energy use is for home heating, and the other 18% is for water heating.

“You want to minimize heat loss to the outside through walls, windows, drafts, etc. and supply heat as efficiently as possible,” said Steven Nadel, executive director of the American Council for an Energy-Efficient Economy.

Home efficiency upgrades could also reduce people’s planet-warming greenhouse gas emissions, at a time when climate change is already driving more extreme and economically costly weather events.

Westend61 | Westend61 | getty images

The Inflation Reduction Act, which President Joe Biden signed into law in August 2022, extended and expanded pre-tax credits available for home efficiency upgrades.

The tax credit is 30% of the cost of eligible projects. There is a dollar limit: Taxpayers can qualify for up to $3,200 per year in total. But their ability to do so depends on how many and which projects they undertake.

Some upgrades have different limitations. For example, homeowners can get up to $500 per year for installing efficient exterior doors, $600 for exterior windows and skylights, plus $1,200 for insulation and air-sealing materials or systems. They can also receive up to $150 for a home energy audit.

The combined tax exemption for these projects is set at $1,200 per year.

For example, replacing single-pane windows with double-pane Energy Star-rated windows is “like closing actual holes in your house,” says energy and climate policy expert Cara Saul, president and CEO of Endil Policy Group. Rinaldi said.

The Environmental Protection Agency estimates that homeowners can save an average of 15% on heating and cooling costs by air-sealing their homes and adding insulation to attics, floors in crawl spaces, and basement rim joists.

Some projects have a separate annual limit of $2,000. These include: installing electric or natural gas heat pump water heaters, electric or natural gas heat pumps and biomass stoves and biomass boilers.

In total, taxpayers can receive a maximum credit of $3,200 per year if they combine projects worth between $1,200 and $2,000. The IRS has published a fact sheet that gives examples of overall tax breaks consumers can expect for specific upgrades.

The Energy Efficient Home Improvement Credit is available through 2032. Homeowners can claim the maximum annual credit each year they make qualifying improvements, and there is no lifetime dollar limit.

“People can look ahead and plan,” Saul-Rinaldi said. “They may know they need insulation in their kids’ rooms, or need to upgrade their windows, or want to make the transition to clean fuels, but they can’t do it all today or this year.”

Establishments must meet certain efficiency standards outlined by the IRS. The IRS said labor costs may not apply in some cases.

Taxpayers can benefit from the tax credit only when they file their annual tax return.

The tax credit is also non-refundable, meaning families must have a tax liability to receive the benefits. The IRS will not issue a refund for any tax credit value that exceeds one’s tax liability. The excess value cannot be carried forward for profit in future tax years.

Taxpayers who want to claim the tax exemption on their 2023 tax return — which most people will file early next year — have a short window to complete a qualifying project. These will have to be completed by the end of December. Projects are only eligible when they are “placed in service” – essentially, after a project is installed and operational.

Saul-Rinaldi said homeowners can consider getting a home energy audit by the end of December, which will qualify for tax breaks and help determine future efficiency projects. Then, homeowners can complete those projects and claim tax exemption in future years.

Experts said they may be able to combine the tax rebates with energy-efficiency rebate programs created by the Inflation Reduction Act and soon being launched by states.

Don’t miss these stories from CNBC Pro:

Source: www.cnbc.com

Leave a Reply

Your email address will not be published. Required fields are marked *