Editor’s note: The La Mirada Blog would like to welcome tax advisor Chris Gelfuso founder of Uplevel Business Services to our team of contributors (see ad on this page). Uplevel specializes in bookkeeping, payroll, and tax return preparation for individuals, small businesses and the self-employed. Moving forward, Chris will be producing a monthly column here, providing news and trends of the industry with timely updates and valuable information on ways individuals and small businesses can save money on their taxes.
Home Improvement Tax Breaks!
You might have heard in the news that The Inflation Reduction Act of 2022 was signed into law by President Joe Biden on August 16, 2022. The main provisions of the act can be summarized as the following:
Creation of a 15% corporate minimum tax rate Corporations with at least $1 billion in income will have a new tax rate of 15%. Taxes on individuals and households won’t be increased. Stock buybacks by corporations will face a 1% excise tax.
Prescription drug price reform One of the most significant provisions of the Inflation Reduction Act will allow Medicare to negotiate the price of certain prescription drugs, bringing down the price beneficiaries will pay for their medications. Medicare recipients will have a $2,000 cap on annual out-of-pocket prescription drug costs, starting in 2025.
IRS tax enforcement The IRS has been sounding the alarm for years about being underfunded and being unable to deliver on its duties. The bill invests $80 billion in the nation’s tax agency over the next 10 years.
Affordable Care Act (ACA) subsidy extension Currently, medical insurance premiums under the ACA are subsidized by the federal government to lower premiums. These subsidies, which were scheduled to expire at the end of this year, will be extended through 2025. Approximately 3 million Americans could lose their health insurance if these subsidies weren’t extended, according to the U.S. Department of Health and Human Services.
Energy security and climate change investments The bill includes numerous investments in climate protection, including tax credits for households to offset energy costs, investments in clean energy production and tax credits aimed at reducing carbon emissions.
In this article, I am going to dive deeper on the last point above regarding the increased tax credits for energy efficient home improvements starting in 2023 through 2034.
Prior to this change, the residential energy property credit was limited to an overall lifetime credit limit of $500. But starting in 2023, the total Energy Efficient Home Improvement Credits were increased to an annual limit of $3,200.
Did you catch that? These credits are now available per year rather than once in a lifetime.
Here are the home improvements which are eligible for the Energy Efficient Home Improvement Credit:
- Exterior doors (30% of costs up to $250 per door, up to a total of $500)
- Exterior windows and skylights (30% of costs up to $600)
- Insulation materials or systems and air sealing materials or systems (30% of costs)
- Home energy audits (30% of costs up to $150)
- Residential energy property (30% of costs, including labor, up to $600 for each item)
- Central air conditioners; natural gas, propane, or oil water heaters; natural gas, propane, or oil furnaces and hot water boilers; and improvements to or replacements of panelboards, sub-panelboards, branch circuits, or feeders
- Heat pumps and biomass stoves and biomass boilers (30% of costs, including labor, up to a total of $2,000)
- Electric or natural gas heat pump water heaters; electric or natural gas heat pumps; and biomass stoves and biomass boilers.
I hope this helps you maximize these credits as you plan future home improvements. Feel free to give me a call at (562) 259-7777 if you have any questions.