The Inflation Reduction Act: What’s In It and How Can You Benefit?
The Inflation Reduction Act (IRA) is a bill signed into law in August of 2022, directing Federal funds towards climate and energy initiatives. We wanted to provide some insight into what it is, what’s in it, and who can benefit from it. At Deupree James Wealth Management, we strive to provide value to our clients, so we hope this helps.
Note: We are financial advisors, not Inflation Reduction Act experts. Rather than providing you with an authoritative all-inclusive document, we wanted to highlight a few things that we found interesting and possibly beneficial to you.
What is the Inflation Reduction Act?
The Inflation Reduction Act was signed into law on August 16, 2022. The bill is roughly 700 pages and authorizes $739 billion in spending over the next 10 years, with nearly $400 billion directed towards climate and energy initiatives. Bottom line: you may be eligible for federal rebates and tax credits for energy efficient home improvements! Details are sparse, but the Department of Energy is expected to release the rules on how to claim these incentives soon, in the summer of 2023. Most consumers are not yet aware of the generous tax breaks, so we wanted to share some of the potential savings so you can plan accordingly.
Who is Eligible?
As a great philosopher once said, “it depends.” While some provisions are limited based on household income, others are not.
A few things to keep in mind regarding the provisions limited by income. While these provisions may exclude some of our working clients, many of our retirees or other members of their families (young adult kids and parents) may be eligible. It’s worth remembering that most of these tax credits and rebates are available for 10 years. If you are approaching retirement and think you could benefit from one of these home improvements, you may consider waiting until you have a qualifying income before making the purchase.
What’s in it?
The bill is more than 700 pages long, so we will give you a few highlights. Please be aware that this is not a comprehensive list, but we wanted to highlight a few provisions that may benefit our clients or their friends and families. If you are a glutton for punishment or want to assign your kids a punitive reading assignment, the full text of the bill can be found here.
The following provisions have limitations based on the applicant’s household income.
High-Efficiency Electric Home Rebate Act (HEEHRA)
This is a rebate program targeted towards low to middle income households and is based on your area’s median income (AMI). For Caddo-Bossier, the AMI for 2021 was $65,500. If you live outside of this area, you can check your location’s AMI here. Rebate programs provide the discount at the point of sale, or upfront, versus tax credits which are claimed at the end of the year when filing one’s taxes.
If the individual’s income is below 80% of the AMI, 100% of the costs are covered (product price + installation), up to the max rebate amount per item. For Caddo-Bossier, this would mean an income below $52,400. If the individual’s income is between 80-150% of the AMI, 50% of these costs are covered. For Caddo-Bossier, this would be between $52,401-98,250.
For each household, the max aggregate rebate available for all items is $14,000. This includes the following items (max rebate available):
- Heat pump for HVAC ($8,000)
- Weatherization including insulation, air sealing, and ventilation ($1,600)
- Heat pump water heater ($1,750)
- Breaker panel ($4,000)
- Electric wiring ($2,500)
- Electric stove ($840)
- Heat pump clothes dryer ($840)
Clean Vehicle Credit (New Electric or Hybrid Vehicles)
This is a $7,500 tax credit that can be applied to the purchase of a new electric or hybrid vehicle. If the individual is married, they cannot have an AGI above $300,000. If the individual is single, the max AGI is $150,000.
This credit can be applied to purchase an SUV, Truck, or Van with an MSRP under $80,000, with all other cars needing an MSRP below $55,000.
Used Clean Vehicle Credit (Electric or Hybrid)
This is a $4,000 tax credit that can be applied to the purchase of a used (at least 2 years old) electric or hybrid vehicle. If the individual is married, they cannot have an AGI above $150,000. If the individual is single, the max AGI is $75,000.
The following provisions are not limited by income.
Energy Efficient Home Improvement Credit
This is a tax credit that can be applied to energy efficient improvements to your home. The tax credit is good for 30% of the following costs, with an aggregate annual credit of $1,200:
- Windows and skylights ($600)
- Doors ($500)
- Insulation ($1,200)
- Central AC ($600)
- Gas/propane water heater ($600)
- Gas/propane furnace or boiler ($600)
- Breaker panel ($600)
- Water heater ($600)
- Heat pump ($600)
Residential Clean Energy Property Credit
This is a tax credit that can be applied to the addition of clean energy sources to your home. There is no cap on the amount of the credit that can be claimed, and the tax credit is good for 30% of the cost. The following items are covered:
- Solar panels
- Battery storage
- Solar water heaters
- Small wind turbines
If you are a business owner who owns commercial real estate, rental properties, is involved in construction, or has a fleet of vehicles, we’d suggest doing a deep dive into the commercial provisions of the Inflation Reduction Act. There are a fair number of financial incentives available, but it’s outside of the scope of this post.
The Inflation Reduction Act is a boon to several sectors of the economy. Some sectors, such as the HVAC industry, may see higher demand over the next decade. If so, the new law could transform a mature industry into a high-growth sector. We have been adding stocks in the HVAC sector to client portfolios where appropriate.
Securities offered through Triad Advisors, LLC. Member FINRA/SIPC. Investment advisory services offered through NewEdge Advisors, LLC, a registered investment adviser. NewEdge Advisors, LLC and Deupree James Wealth Management, LLC are separate entities from Triad Advisors, LLC.
Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan.