How the Inflation Reduction Act might benefit you this 2023 tax season

By Alexis Faber

 

January 29th marked the start of the window to file taxes for 2023, marking an opportunity for taxpayers to claim tax credits eligible under the Inflation Reduction Act (IRA). President Biden signed the IRA into law in 2022, designating $369 billion to shift towards a clean energy economy. This policy is a monumental acknowledgment of the grave impacts the climate crisis is having on the planet and all the life it sustains. The IRA intends to move the United States away from non-renewable energy such as coal, gas, and oil, and paves the way to a just energy transition. Homeowners who have paid for energy-efficient updates such as insulation, windows, doors, electric heat pumps, and electric vehicles can claim the Energy Efficient Home Improvement Credit on their tax return (using form 5695) to receive up to $3,200 each year in non-refundable credits through the year 2032. Those interested in a breakdown of eligible improvements and associated benefits, can refer to this government resource page

 

A notable feature of the benefit provided by the IRA is that 30% of the cost for eligible expenditures can be claimed each tax season for the next decade, until 2033. This can be factored by homeowners into a budget for future home improvement plans. Those who are eligible and need assistance filing taxes can receive assistance from a Volunteer Income Tax Assistance (VITA) provider. Local VITA providers can be found here.

 

In addition to filing taxes, those eligible for rebates can receive discounts at the point of sale. The IRA makes funds available to community members through the Home Efficiency Rebates program and the Home Electrification and Appliance Rebates program, where individuals can directly receive cash back for eligible purchases [rebate finder]. One of the qualifying IRA appliances are air-source heat pumps, which provide both heating and cooling to regulate indoor temperatures. Heat pumps are an energy-efficient HVAC system and support the transition from AC and fossil fuel-dependent furnace systems. Powered by renewable energy, heat pumps reduce both greenhouse gas emissions and utility costs. To help conceptualize potential dollar amount returns, Rewiring America has created a Savings Calculator, a helpful tool for estimating individual incentives and rebates under the IRA. 

For most taxpayers, the deadline to file a federal tax return is Monday, April 15. This date also marks the deadline to pay any tax owed or request an extension. Taxpayers who have paid for energy-efficient updates to their homes should be aware of the benefits offered by the IRA this tax season.

 

Follow up article:

Though a step in the right direction, the Inflation Reduction Act falls short

 

By signing the Inflation Reduction Act (IRA) into law, President Biden and his administration punctuated the importance of moving away from fossil fuel dependence and towards renewable energy. The IRA incentivizes the purchase of energy-efficient home appliances and electric vehicles, offering those who are eligible non-renewable tax credit and point of sale rebates.

 

Our collective and individual dependence on fossil fuels is profound and bound to how we live our everyday lives. Fossil fuels show up in how we cool, heat, and light our homes and drive our cars. These pollutive forms of energy are unsustainable and limited, leaving the public vulnerable to price hikes resulting from a volatile market. Investing in renewable energy on an individual level alone is not the solution to the climate crisis, but the incentives offered by the IRA are an opportunity to empower families to make energy-efficient choices that lower overall energy use, as well as their overall household expenses. Energy efficiency is about using tools that consume less energy and produce the same output or perform the same function. Phasing out fossil fuels and transitioning to energy-efficient equipment is an investment in a sustainable future for our children and the generations to come. By investing in products that perform more efficiently, we benefit on a personal level by saving money on utility expenses, all while conserving our planet’s limited resources. 

 

While the IRA is the most significant policy to combat the climate crisis in U.S. history to date, it falls short in reaching underserved populations in a meaningful way. Immigrant communities and communities of color face systemic barriers that bar access to homeownership, thus voiding opportunities for home improvement credits. Builders and homeowners have the clearest incentive to invest in energy efficient updates, but where landlords stand to benefit, or even qualify for this program, is a gray area. The most disenfranchised communities are renters, and vulnerable to the will of their landlord when it comes to energy efficient appliances or insulation. Achieving a more equitable society requires pointed collaboration with landlords, especially those managing low-income housing units, and incentivizing landlords to make energy efficient renovations and updates to their properties. These in-home updates would have tangible benefits for renters, including more affordable utility expenses and improved housing quality. If the IRA accounted for this gap, it would have a much greater impact on decreasing U.S. greenhouse gas emissions, improving housing quality, and alleviating utility expenses for low-income renters.

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