Inflation Reduction Act: What tax breaks are included?

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Lawmakers vote on Inflation Reduction Act

(NewsNation) — A number of tax breaks for households are included in the Inflation Reduction Act, which the House passed on Friday and President Joe Biden is expected to sign.

A lot of these incentives go toward helping people make energy-efficient investments, including in solar panels, electric vehicles and environmentally-friendly appliances.

Some of these are new, and others enhance or extend existing credits, CNBC reports.

Electric vehicles

Under the federal legislation, consumers who buy a used electric vehicle can get an up to $4,000 tax credit, while those who get a new one are eligible for an up to $7,500 credit. However, the vehicle itself needs to meet criteria established by Congress, as previously reported by NewsNation.

To receive the full credit, new electric vehicles have to be made in North America. They also must use batteries composed of minerals mined from countries that have a free trade agreement with the U.S. Next year, 40% of the metals in a vehicle’s battery would have to come from North America to get the full credit. In 2027, 80% of the metals would need to come from the continent.

Any vehicles over $55,000, and any truck, SUV or van over $80,000 won’t be eligible, nor will individuals who make more than $150,000.

Industry experts say there’s a good chance that with these new requirements, most vehicles won’t meet the new criteria needed for these tax breaks.

“The $7,500 credit might exist on paper, but no vehicles will qualify for this purchase incentive over the next few years,” John Bozzella, CEO of the Alliance for Automotive Automation, said in a statement.

However, some experts who spoke to CNBC said that both the tax credits and additional savings on fuel, maintenance and repairs can make these requirements more palatable to consumers. A Consumer Reports study from 2020 found the average electric vehicle consumer saves $6,000 to $10,000 compared to if they had a gas-powered vehicle.

Rooftop solar panels

Congress passed an extension in 2020 of the Investment Tax Credit, which provides a 26% tax credit for solar systems installed in 2020-2022 and 22% for systems installed in 2023, according to the Office of Energy Efficiency and Renewable Energy. This credit, however, was scheduled to drop to 22% for systems installed next year, and would have expired by 2024, Grid News wrote.

Through the Inflation Reduction Act, this credit would be brought back and increased to 30% for residential solar through 2032. It is retroactive through the start of 2022, but the credit goes down to 26% in 2033, then to 22% in 2034.

“It really strengthens the grid for everybody,” Abigail Ross Hopper, president of the Solar Energy Industries Association, told NPR.

A typical solar system costs $15,000-$25,000 before credits and incentives, per data from the Center for Sustainable Energy.

The Inflation Reduction Act lets the tax credit also be used for battery storage technology. Lesley Jantarasami, managing director of the Bipartisan Policy Center’s energy program, told CNBC that this will make it easier for homeowners to pair solar installations with battery systems that store excess renewable energy for later use.

Energy-efficient appliances, upgrades

Those who make certain energy-efficient improvements to their homes could claim 30% of the total cost on their taxes. Eligible projects include the installation of efficient appliances such as water heaters, skylights, as well as exterior doors and windows. Available through 2032, the tax credit, like the ones for solar panels, are retroactive, and the Inflation Reduction Act extends it for more than a decade.

More than $8 billion in rebate programs, which NPR says are aimed at lower-income and middle-income households, are set aside in the inflation Reduction Act as well.

These rebates will take time to set up. States have to apply for the money and set up systems to implement the rebates, Lowell Ungar, director of federal policy with the American Council for an Energy-Efficient Economy, said in NPR. At that point, the rebates will take effect at the point of sale.

The amount of the rebate for different appliances are: no more than $1,750 for a water heater; up to $8,000 for a heat pump for space heating or cooling; $840 for an electric stove, cooktop, range, oven or electric pump clothes dryer.

Non-appliance upgrades that can get a rebate are insulation, air sealing and ventilation ($1,600), electric load service center upgrades ($4,000) and electric wiring ($2,500).

The Associated Press contributed to this report.

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