Taxpayers who make home energy improvements in 2023 may be able to take advantage of tax credits for a portion of the qualifying expenses. The credit amounts were increased, and types of qualifying expenses were expanded, by the Inflation Reduction Act of 2022.
Who can claim energy credits. There are two energy-related credits available to taxpayers making qualifying improvements to their home: the Energy Efficient Home Improvement Credit or the Residential Energy Clean Property Credit. A taxpayer may claim these credits in the year the taxpayer makes a qualifying improvement to their primary home. Usually, a taxpayer’s primary home is where the taxpayer spends most of their time. In addition, to qualify for an EEHIC, the improved home must an existing home located in the United States.
Note. Generally, a taxpayer may claim these credits only for qualified improvements to their primary residence; however, a taxpayer may be able to claim energy-related credits for certain improvements to a second home if the taxpayer does not use the second home as a rental property. In addition, renters who purchase energy efficient appliances and other products for their rental home may be able to claim these tax credits.
Taxpayers can claim an Energy Efficient Home Improvement Credit for many home improvements that meet certain energy efficiency requirements. This includes:
- Exterior doors,
- Windows, skylights,
- Insulation materials,
- Central air conditioners,
- Heat pumps and heat pump water heaters,
- Biomass stoves and boilers, and
- Home energy audits
Generally, the maximum credit a taxpayer may claim each year is:
- $1,200 for energy property costs and certain energy efficient home improvements, with limits on doors ($250 per door and $500 total), windows ($600) and home energy audits ($150)
- $2,000 per year for qualified heat pumps, biomass stoves or biomass boilers.
The actual amount of the taxpayer’s credit is a percentage of the total cost of the improvements in the year of installation. In certain circumstances, the credit may be capped.
The EEHIC has no lifetime dollar limit. A taxpayer can claim the maximum annual credit every year they make eligible improvements until 2033.
The EEHIC is not refundable and cannot be carried over to another tax year. So, it might make sense to take a large project, like replacing windows, and do some of it over several years.
Taxpayers who invest in renewable energy for their primary home may be able to claim the Residential Clean Energy Credit. Qualified RCE credit improvements include:
- Solar, wind and geothermal power generation,
- Solar water heaters,
- Fuel cells, and
- Battery storage
Generally, the credit amount is a percentage of the total cost of the improvement in the year of installation. For tax years 2022-2032 that percentage is 30%. Generally, there is no annual maximum or lifetime limit.
The Residential Clean Energy Credit can be claimed for qualified improvements to a taxpayer’s new or existing home located in the United States.
An informed taxpayer and their tax professional can use these benefits to assist in paying the lowest legal amount of tax.
If it sounds too good to be true, it probably is.
The IRS has sounded the alarm repeatedly regarding a scam involving the Employee Retention Credit (ERC). Third parties have been aggressively promoting that businesses may be eligible for the ERC when they are not.
The ERC is a refundable tax credit that was introduced during the COVID-19 pandemic to provide an incentive to employers to keep employees on the payroll during a government shutdown or significant decline in gross receipts. The ERC was available to eligible employers for qualified wages paid after March 12, 2020, and before October 1, 2021 (with an exception for recovery start-up businesses through December 31, 2021).
The eligibility requirements, applicable time periods, and dollar limitations changed several times due to the passage of various federal legislation thereby claiming the ERC is far more complex than these ERC schemes make out.
Perhaps you have heard advertisements, phone calls or text messages claiming your business is eligible for the ERC and claim the application process is “easy.” These third parties will then charge large upfront fees or charge a fee based on a percentage of the refund amount the ERC generated. However, these ERC scams lie about eligibility requirements and your business will not only need to return the refund and amend employment tax returns but may be subject to penalties and interest.
There is no statute of limitations on IRS review of ERC claim.
If you would like to discuss the ERC, please reach out and we can work together to determine if you truly qualify for the credit. If you have claimed the ERC through a third party, please contact us so that we can help you resolve any possible underpayment or erroneous refund that occurred.
As always, you and your business are in our best interest.
Many parents pay for childcare or day camps in the summer while they work. If this applies to you, your costs may qualify for a federal tax credit that can lower your taxes. Here are 10 facts that you should know about the Child and Dependent Care Credit:
- Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 usually qualify. For more about this rule see Publication 503, Child and Dependent Care Expenses.
- Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they’re physically or mentally incapable of self-care.
- You must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care. This rule also applies to you if you file a joint return. Refer to Publication 503 for more details.
- As a rule, if you’re married you must file a joint return to take the credit. But this rule doesn’t apply if you’re legally separated or if you and your spouse live apart.
- You may qualify for the credit whether you pay for care at home, at a daycare facility or at a day camp.
- The credit is a percentage of the qualified expenses you pay. It can be as much as 35 percent of your expenses, depending on your income.
- The total expense that you can use for the credit in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.
- Overnight camp or summer school tutoring costs do not qualify. You can’t include the cost of care provided by your spouse or your child who is under age 19 at the end of the year. You also cannot count the cost of care given by a person you can claim as your dependent. Special rules apply if you get dependent care benefits from your employer.
- Keep all your receipts and records. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information when you claim the credit on your tax return.
- Remember that this credit is not just a summer tax benefit. You may be able to claim it for care you pay for throughout the year.
For more on this topic, see Publication 503 on IRS.gov.
IRS Special Edition Tax Tip 2014-16, June 11, 2014
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