Article Highlights:​

• California Tax Season Extension

• Clean Vehicle Tax Credit - All About Electric Vehicles

• Residential Clean Energy Credit - The Solar Tax Credit

• Energy-Efficient Home Improvement Credit - Changes

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As the end of the year approaches, now is a good time to review the various changes that impact 2022 tax returns. Some of the changes are likely to apply to your tax situation. In addition, be aware that various tax-related bills currently in Congress may or may not pass this year. If any of them do pass, we will quickly get the details to you.

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California Tax Season Extension - Due to the impact of the 2022-2023 winter storms, many CA residents qualify for an extension on their state and federal tax returns moving the due date to May 15, 2023.

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Clean Vehicle Tax Credit – Congress will continue to provide tax credits of up to $7,500 for the purchase of plug-in electric vehicles. However, Congress’s rules limit the credit based on the purchaser's income.  Credit has been eliminated for purchasers with an income over $300,000 for Married Filing Joint or Surviving Spouse, $225,000 for Head of Household, $150,000 for Others.

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In addition, for a vehicle to qualify, it must meet the following qualifications:

1. Be a 4-wheel vehicle.

2. Be a Street Vehicle that was manufactured primarily for use on public streets, roads, and highways.

3. Have a Minimum Battery Capacity of 7 kilowatt-hours.

4. Be acquired for Original Use by the taxpayer.

5. Have had its Final Assembly in North America, which includes the 50 states, the District of Columbia, and Puerto Rico, Canada, and Mexico.

6. Meet the MSRP requirement - The manufacturer's suggested retail price (MSRP) cannot exceed: $80,000 for vans, SUVs, and pickups and $55,000 for other vehicles.

7. Meet the Critical Mineral and Battery Components test.

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The IRS provides a list of eligible vehicles on its website.

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Residential Clean Energy Credit - The Inflation Reduction Act signed into law August 16, 2022 allows credit for the purchase and installation costs of residential solar-power systems and provides guidelines allowing batteries to also qualify for the credit.

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The Inflation Reduction Act extends the solar credit through 2032 at 30% before phasing it out in years 2033 and 2034. Those who qualify for the credit in 2022 will receive a bonus, as the credit for 2022 was 26% under the prior law phase-out, but the legislation has returned the credit to 30% for 2022. Below summarizes the credit percentage for the past and future years under this new legislation.

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• Thru 2019 — 30%

• 2020–2021 — 26%

• 2022–2032 — 30%

• 2033 — 26%

• 2034 — 22%

• After 2034 — 0%

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Batteries – The Inflation Reduction Act of 2022 amended the previous code by adding and defining the term “qualified battery storage technology expenditure.” Thus clarifying that for expenditures made after December 31, 2022, battery storage technology that meets the following requirements will qualify for the credit:

 

(A) It is installed in connection with a dwelling unit in the United States that is used as a residence by the taxpayer, and

(B) It has a capacity of not less than 3-kilowatt hours.

 

Homeowners who already have a solar installation can add a storage battery and qualify for the solar credit for the cost of the battery.

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Energy-Efficient Home Improvement Credit – With the passage of the Inflation Reduction Act of 2022, this credit once again becomes a

meaningful incentive for taxpayers to make energy-saving improvements to their homes. The new legislation replaced the $500 limit with a $1,200 annual limit and also increased the credit rate from 10% to 30%. The legislation also made the changes retroactive to include home energy-saving improvements for 2022 and extending the credit through 2032.

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As before, under prior law, there are certain credit limits that apply to the various types of energy-saving improvements. For example: 

• $600 for credits with respect to residential energy property expenditures, windows, and skylights

• $250 for any exterior door ($500 total for all exterior doors).

• $300 for residential qualified energy property expenses.

• $2,000 annual limit applies with respect to amounts paid or incurred for specified heat pumps, heat pump water heaters, and biomass stoves and boilers. 

• The $1,200 credit amount is increased by up to $150 for the cost of a home energy audit.

• Air Sealing Insulation is a creditable expense.

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Under the new law, the one making the improvements and claiming the credit need only be a resident of the home and not necessarily the owner.

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Identification Number Requirement - The Act added a new provision that bars the credit unless the energy-saving item is produced by a qualified manufacturer, and the taxpayer includes the qualified product identification number of the item on their tax return for the tax year the credit is

claimed. However, that requirement does not take effect until after December 31, 2024, giving qualified manufacturers time to comply.

 

Other Credit Issues - It is a nonrefundable personal tax credit and is allowed against the alternative minimum tax (AMT) if the taxpayer is subject to the AMT. There are no credit carryover provisions if the credit is not fully utilized in the year of the home energy improvements. Unlike the solar credit, this credit doesn't have any specific prohibitions against swimming pools or hot tubs.

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If you have questions related to any of the topics discussed in this article, please call the tax professionals at ProTax Service in Playa Vista at (310) 869-0038. We specialize in filing taxes for self-employed individuals, families, and small business tax preparation in Culver City, Playa del Rey, Westchester, Santa Monica and Marina del Rey.