Earn Decarbonization Tax Credits in New Law

Earn Decarbonization Tax Credits in New Law

The Inflation Reduction Act of 2022 (IRA) provides decarbonization-related tax credits and rebates. This Act allocates almost $370 billion, according to the official estimate, to climate solutions and energy security, but it comes largely in the form of tax credits that do not have a limit on how many of them can be activated (there is a limit on the rebates). So, there are many experts who believe that it is going to be much larger than that.

This law, when combined with existing policy, will enable the U.S. to sharply reduce global warming pollution by 40 percent or so below the 2005 levels. That is getting close to the commitments the U.S. made as part of the Paris Agreement.

The tax refunds have been defined and are available now (credits available in the year following purchase), while the rebates will not be available until the end of this year. So, let’s focus on the tax credits for now. Buildings account for 31 percent of energy-related carbon dioxide emissions in the U.S., so many of the tax credits have to do with building decarbonization.

New tax credits:
• up to $2,000 for heat pump HVAC systems;
• $2,000 for heat pump water heaters;
• $1,200 for weatherization;
• $600 for electrical panels;
• 30 percent for battery storage;
• 30 percent for geothermal heating;
• 30 percent for rooftop solar installation
• up to $7,500 for new electric vehicles (EVs),
• $4,000 for used EVs
• $1,000 for EV chargers.

The fine print
There are a lot of caveats with EV tax credits which are described at the IRS website www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-.... It is critical to save your receipts, then fill out the appropriate forms when filing your taxes.

It is important to keep in mind that tax credits are only applicable if you owe that in taxes to the federal government. For example, if you bought a new EV this year and qualified for a $7,500 tax credit, but only owe $6,000 in Federal tax in 2024, your tax credit will only be $6,000, not $7,500. Nothing carries over to the following year either.

For more details on tax credits and plans for rebates later this year or early next year, you can go to www.rewiringamerica.org/app/ira-calculator and enter your zip code, income, tax filing status, household size, etc. This website calculates the eligible tax credits and rebates for you and provides links to all the caveats.

Do not forget to check the Alameda Municipal Power (AMP) website for rebates available now as well at www.alamedamp.com/407/Rebates-and-Incentives.

Take advantage of these tax credits and decarbonize much of your life to protect the climate. Remember that AMP’s electricity is 100 percent renewable so switching to electric-powered devices is the way to go to protect the climate.

Joyce Mercado is a contributing writer with Community Action for a Sustainable Alameda.