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The Inflation Reduction Act (IRA) established and expanded numerous incentives to encourage taxpayers to increase their use of renewable energy and adoption of a range of energy efficient improvements. In particular, the law includes funding for nearly $9\u00a0billion in home energy\u00a0rebates.<\/p>\n
While the rebates aren\u2019t yet available, many states are expected to launch their programs in 2024. And the IRS recently released some critical guidance (Announcement 2024\u201319) on how it\u2019ll treat the rebates for tax purposes.<\/p>\n
The rebate programs<\/strong><\/p>\n The home energy rebates are available for two types of improvements. Home Efficiency Rebates<\/em> apply to whole-house projects that are predicted to reduce energy usage by at least 20%. These rebates are applicable to consumers who reduce their household energy use through efficiency projects. Examples include the installation of energy efficient air conditioners, windows and\u00a0doors.<\/p>\n The maximum rebate amount is $8,000 for eligible taxpayers with projects with at least 35% predicted energy savings. All households are eligible for these rebates, with the largest rebates directed to those with lower incomes. States can choose to provide a way for homeowners or occupants to receive the rebates as an upfront discount, but they aren\u2019t required to\u00a0do\u00a0so.<\/p>\n Home Electrification and Appliance Rebates<\/em> are available for low- or moderate-income households that upgrade to energy efficient equipment and appliances. They\u2019re also available to individuals or entities that own multifamily buildings where low- or moderate-income households represent at least 50% of the residents. These rebates cover up to 100% of costs for lower-income families (those making less than 80% of the area median income) and up to 50% of costs for moderate-income families (those making 80% to 150% of the area median income). According to the Census Bureau, the national median income in 2022 was about $74,500 \u2014 meaning some taxpayers who assume they won\u2019t qualify may indeed be eligible.<\/p>\n Depending on your state of residence, you could save\u00a0up\u00a0to:<\/p>\n The maximum Home Electrification and Appliance Rebate is $14,000. The rebate amount will be deducted upfront from the total cost of your payment at the \u201cpoint of sale\u201d in participating stores if you\u2019re purchasing directly or through your project contractors.<\/p>\n The tax treatment<\/strong><\/p>\n In the wake of the IRA\u2019s enactment, questions arose about whether home energy rebates would be considered taxable income by the IRS. The agency has now put the uncertainty to rest, with guidance stating that rebate amounts won\u2019t be treated as income for tax purposes. However, rebate recipients must reduce the basis of the applicable property by the rebate amount.<\/p>\n If a rebate is provided at the time of sale of eligible upgrades and projects, the amount is excluded from a purchaser\u2019s cost basis. For example, if an energy-efficient equipment seller applies a $500 rebate against a $600 sales price, your cost basis in the property will be $100, rather than\u00a0$600.<\/p>\n If the rebate is provided at a later time, after purchase, the buyer must adjust the cost basis similarly. For example, if you spent $600 to purchase eligible equipment and later receive a $500 rebate, your cost basis in the equipment drops from $600 to $100 upon receipt of the\u00a0rebate.<\/p>\n Interplay with the Energy Efficient Home Improvement Credit<\/strong><\/p>\n The IRS guidance also addresses how the home energy rebates affect the Energy Efficient Home Improvement Credit. As of 2023, taxpayers can receive a federal tax credit of up to 30% of certain qualified expenses, including:<\/p>\n The maximum credit each year\u00a0is:<\/p>\n Taxpayers who receive home energy rebates and are also eligible for the Energy Efficient Home Improvement Credit must reduce the amount of qualified expenses used to calculate their credit by the amount of the rebate. For example, if you purchase an eligible product for $400 and receive a $100 rebate, you can claim the 30% credit on only the remaining $300 of the\u00a0cost.<\/p>\n Act now?<\/strong><\/p>\n While the IRA provides that the rebates are available for projects begun on or after August\u00a016, 2022, projects must fulfill all federal and state program requirements. The federal government, however, has indicated that it\u2019ll be difficult for states to offer rebates for projects completed before their programs are up and running. In the meantime, though, projects might qualify for other federal tax breaks. Contact us to determine the most tax-efficient approach to energy efficiency.<\/p>\n \u00a9 2024<\/em><\/p>\n <\/body> The Inflation Reduction Act (IRA) established and expanded numerous incentives to encourage taxpayers to increase their use of renewable energy and adoption of a range of energy efficient improvements. In particular, the law includes funding for nearly $9\u00a0billion in home energy\u00a0rebates. While the rebates aren\u2019t yet available, many states are expected to launch their programs […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,59,10],"tags":[8,11,12],"class_list":["post-17116","post","type-post","status-publish","format-standard","hentry","category-articles","category-etra","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17116","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=17116"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17116\/revisions"}],"predecessor-version":[{"id":17117,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17116\/revisions\/17117"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=17116"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=17116"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=17116"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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