January 30, 2024
Energy Tax Credits for 2024
The Inflation Reduction Act of 2022 offers valuable energy tax credits, providing a significant financial boost for homeowners and small businesses investing in renewable energy and energy-efficient upgrades. These incentives support sustainability and open doors to substantial economic gains, making green energy solutions more financially attractive than in previous years.
Small businesses and homeowners can choose from various credits covering building upgrades, renewable energy projects, and home energy enhancements. These improvements can lead to potential cost savings and boosted property value, making energy tax credits valuable for long-term financial viability.
Whether you’re a homeowner aiming to reduce energy expenses or a business owner seeking greater operational efficiency, critical energy tax credits are available for 2024. Let’s explore how they can positively impact your financial bottom line.
Key Energy Tax Credits for Homeowners
Energy Efficient Home Improvement Credit: Homeowners can enhance their home’s energy efficiency with upgrades like insulation and energy-efficient windows. This credit covers up to 30% of the cost of these improvements, up to $3,200, valid through 2032. It’s important to claim this credit in the tax year when the installation is completed. The credit is limited to $1,200 per year for energy property costs and certain energy efficient home improvements, with limits on doors ($250 per door and $500 total), windows ($600) and home energy audits ($150) and $2,000 per year for qualified heat pumps, biomass stoves or biomass boilers.
The credit has no lifetime dollar limit. You can claim the maximum annual credit every year that you make eligible improvements until 2033.
Residential Clean Energy Credit: For homeowners investing in renewable energy systems such as solar panels, this credit offers substantial incentives, covering up to 30% of the system costs, including installation, through 2032. This credit can be claimed annually for each installation year until it starts phasing out in 2033.
Key Energy Tax Credits for Small Businesses
Energy Efficient Commercial Buildings Deduction (Section 179D): This provision permits businesses to deduct expenses incurred for energy-efficient building upgrades. This includes improvements to lighting, heating, cooling, ventilation, and hot water systems. Notably, the deduction amount has been increased to up to $5.00 per square foot, a rise from the earlier $1.88. However, these enhanced amounts are contingent on meeting new wage and apprenticeship requirements. Professional tax consultation is advisable.
Business Energy Investment Tax Credit (ITC): The Internal Revenue Service’s Investment Tax Credit (ITC) offers businesses a tax credit of up to 30% for the installation of renewable energy systems such as solar panels, wind turbines, fuel cells, and geothermal systems. The ITC is available through 2032 and the exact credit amount varies depending on the type of technology and the date of installation.
Renewable Electricity Production Tax Credit (PTC): This credit benefits businesses that produce electricity from renewable sources like wind, biomass, geothermal, and hydropower. Eligible businesses can receive up to a 30% tax credit on the cost of their renewable energy system installation through 2032. The amount of the credit varies depending on the technology and the year of installation. Additionally, eligible businesses can earn up to 2.75 cents per kilowatt-hour, subject to labor requirements.
New Energy Efficient Home Credit (for home builders): Relevant for small businesses in the home construction sector, this credit is available for the construction of energy-efficient residential properties. Eligible contractors who build or substantially reconstruct qualified new energy-efficient homes may be able to claim tax credits up to $5,000 per home.
Alternative Fuel Vehicle Refueling Property Credit: This credit supports businesses that install alternative fuel vehicle refueling and charging stations. It includes electric vehicle charging stations and natural gas, propane, and hydrogen refueling infrastructure. Normally, the credit is valued at 6% of the cost of this equipment, with the most you can get for each piece of equipment being $100,000. However, if your business pays workers the prevailing wage in your area and employs apprentices, you can get a bigger credit – 30% of the cost, but still with a maximum of $100,000 for each piece of equipment.
Starting in 2023, qualifying property is limited to property placed in service within low-income communities or non-urban census tracts.
Both individuals and small businesses are advised to seek the expertise of a tax professional who is well-versed in these credits. Their guidance is crucial for understanding eligibility, application processes, and optimizing the benefits of these incentives.
Wilke CPAs & Advisors is ready to help homeowners and small business owners achieve their financial goals. Contact us to explore how energy tax credits can benefit your specific tax situation.