Inflation Reduction Act Updates
We’re well into Quarter 2 and everyone is anxious for new Inflation Reduction Act (IRA) information. Last time we provided information, we know a few things were vague and other information was missing. Solid information from the government, federal & state level, was hard to come by.
Sadly, that hasn’t changed by much.
According to the IRS and Department of Energy, the two major agencies who control the incentives, there are few and far between updates since the beginning of the year. The end of this article will have links to help keep you up to date from their respected government sources.
Here are same highlights:
The IRS released Form 5695, the Residential Energy Credits form to apply for the tax credits that apply to our industry for the 2023 tax season. It would be a good idea to read it, along with the instructions for your own education. However, I would not be surprised if the form is updated between now and the end of the year, multiple times.
Be aware, do not answer questions to customers without prefacing that you cannot provide tax or accounting advice and the customer must consult with a CPA.
There were some questions raised about the energy tax credit regarding if a landlord is able to claim it. Right now, the IRS says no. The home must be the primary residence of the person claiming the tax credit. Some of the rebate programs allow landlords to claim rebates, but these are location specific, and research is required on your end to find out how they apply to your area.
When Will the Funds for the Rebate Program be Available?
The Department of Energy is tasked with allocating the money that will be dispersed for various rebate programs. In their own words:
“Home Energy Rebate Program funds are not yet available. DOE is currently conducting stakeholder outreach, developing program guidance, and hosting listening sessions with key stakeholders including states, Indian tribes, labor, and industry.
Later in 2023, DOE will make funds available to State Energy Offices and Indian tribes, as defined by the law.”
Visit https://www.energy.gov/scep/home-energy-rebate-programs to stay up to date on new information.
The rebate programs are also more complicated as they end up going through the state and each program has unique stipulations. For example, the High-Efficiency Electric Home Rebate Program has a stipulation that the family of the household must be at or below 150% the area’s median income. The Census is the only current resource to find an area’s median income: https://www.census.gov/quickfacts/fact/map/US/PST045222. However, this has not been explicitly stated by the DOE yet. For now, use this to help a homeowner evaluate whether or not they qualify until the DOE provides a different resource.
Homeowners may still need to do energy audits before work done on their home, in order to qualify for tax credits and rebates. It looks like an almost guarantee for the rebates and a strong potential for the tax credit at this point. As of writing this, these agencies have not released the specifications for these audits. Both have mentioned that details will be “coming soon”. The IRS mentions a tax credit of $150 for an IRA involved energy audit, but there’s no line item in the Form 5695 for it and it’s not in the IRS instructions for Form 5695. Again, it’s noted that more information is to come, but no timeframe other than 2023 has been communicated. At that, it’s not yet clear if this credit will go towards a credit limit or to which limit it would apply to.
Something to keep in mind that hasn’t been brought up before: There is a max on the total yearly tax credit amount that can be claimed. Not only the max $1,200 for the category of energy efficient home improvement we are in, but there’s an overall $3,200 limit on the complete total of Energy Efficient Home Improvement Credits that can be claimed for the year. This is in combination to the other categories of home improvements. For example, if a homeowner is getting a more energy efficient boiler, HVAC, adding fuel cells and/or solar panels, this can hit the overall limit of $3,200 that a homeowner can claim. They may not be able to claim their new insulation work if they go over their limit with other incentive eligible projects.
What to Do?
At this point, it’s best to limit educating the homeowner to what is available and providing resources. We recommend not committing to any guarantees to a homeowner since this is a tax and accounting issue, best left to a CPA. The information coming from the IRS and DOE is ever evolving. We were under the impression to be in Q2 with a better understanding of the IRA incentives. However, there are still many unanswered questions on the federal and state level of the program.
Once we find out more tangible information on the IRA, we’ll let you know ASAP.
Official Sources for more information
IRS Page for IRA updates and information: https://www.irs.gov/inflation-reduction-act-of-2022
DOE Page for Home Energy Rebate Programs: https://www.energy.gov/scep/home-energy-rebate-programs