President Joe Biden recently signed a climate, health care, and tax bill into law. The bill, also called the Inflation Reduction Act, could help more Americans manage their health care costs and encourage more people to invest in sustainable energy improvements. Most of these changes will be in effect for tax year 2023, but some changes could affect your 2022 return.
Here’s how the new law could impact your taxes this year and next.
A new Clean Vehicle Tax Credit
Prior to 2023 and the Inflation Reduction Act, the tax credit for electric vehicles (EVs) was called the Plug-In Electric Drive Motor Vehicle Credit. It was a nonrefundable credit worth up $7,500 for the purchase of a new, qualifying electric vehicle (EV).
Under the Inflation Reduction Act, the credit was renamed the Clean Vehicle Tax Credit. There are also new eligibility requirements and an income limit. The new Clean Vehicle Tax Credit will apply to tax year 2023 (returns filed in 2024) and later.
Not all EVs – and not all taxpayers – are going to qualify for this tax credit, so it’s important to read the requirements carefully.
How much is the new Clean Vehicle Tax Credit?
The Clean Vehicle Tax Credit is worth up to $7,500 for the purchase of a new vehicle, and up to $4,000 for the purchase of a used vehicle.
Which electric vehicles qualify for the new tax credit?
The new credit applies to any “clean vehicle,” so a hydrogen fuel cell car or a plug-in hybrid vehicle with four to seven kilowatt hours of battery capacity could qualify.
To claim the new Clean Vehicle Credit for a new vehicle:
- If it’s a car, it must cost less than $55,000; if it’s a van, SUV, or pickup truck, it must cost less than $80,000
- Your EV must receive final assembly in North America if purchased after August 17, 2022*
- Your EV must be made by an eligible manufacturer
- Your modified AGI cannot exceed $300,000 if you’re married filing jointly, $225,000 if you’re head of household, or $150,000 if you file as single
To claim the new Clean Vehicle Credit for a used vehicle:
- The vehicle must cost less than $25,000
- Your modified AGI cannot exceed $150,000 if you’re married filing jointly, $112,500 if you’re head of household, or $75,000 if you file as single
*If you signed a purchase agreement before August 16, 2022 for an electric vehicle manufactured outside the U.S., you can still qualify for this credit if all other criteria are met.
Which vehicles will not qualify for the new Clean Vehicle Tax Credit?
It’s a little too early to know which specific vehicles will not qualify for the new tax credit in 2023. But because of the price cap and manufacturing requirements, certain popular and higher-end vehicles will likely be disqualified.
You can find a list of vehicles that receive final assembly in North America for 2022 and 2023 on the Department of Energy’s website: View vehicle list
What is the EV tax credit amount for tax year 2022?
If you purchased an electric or alternative motor vehicle before the Inflation Reduction Act was signed, you may still qualify for the old Plug-In Electric Drive Motor Vehicle Credit. The amount of credit ranges between $2,500 and $7,500, depending on the capacity of the battery.
See IRS list of qualified vehicles and credit amounts for tax year 2022
See how to claim this credit using TaxSlayer
Increased tax credits for energy-efficient home improvements
Before the Inflation Reduction Act, there was already a tax credit for certain energy-efficient upgrades to your home—but that credit was set to expire at the end of 2021. The Inflation Reduction Act renewed and expanded the tax credit, and renamed it the Energy Efficient Home Improvement Credit.
How much is the new Energy Efficient Home Improvement Tax Credit?
If you purchase energy-efficient equipment for your home between January 1, 2023 and December 31, 2032, you could receive a tax credit worth 30% of the cost of the eligible property, up to $1,200 per year.
How much is the credit for energy-efficient upgrades made in 2022?
The maximum tax credit for energy-saving improvements made to your home in 2022 is $500.
For tax year 2022, the rules for claiming the old credit still apply. This means you can claim 10% of the costs of installing certain improvements to your home, including energy-efficient insulation, windows, doors, and roofing. And you can claim 26% of your costs to install a qualified solar electric system, solar water heating system, small wind energy system, geothermal heat pump system, biomass fuel system, and/or fuel cell system. The total amount of credit you can claim for all upgrades is $500.
The new Energy Efficient Home Improvement Credit will apply to tax year 2023 (returns filed in 2024) and later.
Is there a tax credit for smart appliances?
There isn’t a tax credit for smart appliances. Instead, the Inflation Reduction Act provides a rebate for low- and middle-income families who purchase energy efficient appliances like thermostats, washers and dryers, refrigerators, etc.
How do I claim the Residential Energy Tax Credit using TaxSlayer?
TaxSlayer makes it easy to see what credits you qualify for and claim them. Here is how it works in our program.
Extending the Premium Tax Credit
The Premium Tax Credit is a refundable credit that is meant to help eligible individuals and families afford health insurance purchased through the Marketplace. During the COVID-19 pandemic, the American Rescue Plan temporarily expanded the credit, so it was available to households with income above 400% of the Federal Poverty Level.
The Inflation Reduction Act extended this provision, so households above 400% of the Federal Poverty Line can continue to claim the credit. Learn more about the Premium Tax Credit
Will the Inflation Reduction Act raise my taxes?
The Inflation Reduction Act isn’t expected to raise taxes for individual taxpayers. But the law does impose a new 15% tax on corporations earning more than $1 billion.