Article Highlights:

Federal Disaster Declaration.
Filing Dates Extended.
Option as When to Declare the Disaster Loss.
Records Located Within Disaster Area.
Other Disaster Areas.

The Federal government providesspecial tax law provisions to help taxpayers and businesses recover financially from the impact of a disaster, especially when the federal government declares their location to be a major disaster area as they have for Hurricane Ian. The following highlights the special tax provisions:
Filing Due Dates Affected –

October 17, 2022 – Is the extended due date for 2021 returns that are on a valid extension.This means individuals who had a valid extension to file their 2021 return due to run out on October 17, 2022, will now have until February 15, 2023, to file. However, because tax payments related to these 2021 returns were due on April 18, 2022, those payments are not eligible for this relief and late payment penalties will apply to any tax due on the return.
January 17, 2023 – Is the filing due date for the 4th quarter estimated tax payment which now is not due until February 15, 2023.
The February 15, 2023, deadline also applies to:o Quarterly payroll and excise tax returns normally due on October 31, 2022, and January 31, 2023.o Businesses with an original or extended due date also have the additional time including, among others, calendar-year corporations whose 2021 extensions run out on October 17, 2022. Similarly, tax-exempt organizations also have the additional time, including for 2021 calendar-year returns with extensions due to run out on November 15, 2022.In addition, penalties on payroll and excise tax deposits due on or after Sept. 23, 2022, and before Oct. 10, 2022, will be abated as long as the deposits are made by Oct. 10, 2022.

Option as When to Declare the Disaster Loss – The IRS allows both individuals and businesses in a federally declared disaster to claim a disaster loss in either the current tax year or the previous tax year. Claiming the loss in the prior year allows taxpayers to get a faster tax refund for the disaster loss. So hurricane Ian losses can be claimed on either:

The 2022 return or
The 2021 return by amending an already filed 2021 return or the unfiled 2021 that is currently on extension through October 17, 2022. That extension has been extended through February 15, 2023, as part of the disaster relief.

However, careful consideration should be given to which year’s return will provide the greater tax benefit. Also, consider that claiming the loss on the 2021 where there would otherwise be a tax due can reduce or eliminate any late payment penalties.
Be sure to write the FEMA declaration number – DR-4673-FL − on any return claiming a loss. See Publication 547 for details.
The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.
In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.
The tax relief is part of a coordinated federal response to the damage caused by Hurricane Ian and is based on local damage assessments by FEMA. For information on disaster recovery, visit DisasterAssistance.gov.
Similar provisions apply to other disaster areas. Here are some recent areas:

California Wildfires – With the extension date being January 3, 2023.FEMA declaration number – FEMA-4610-DR.
Puerto Rico and Hurricane Fiona – With the extension date being February 15, 2023.FEMA declaration number – EM-3583-PR.
Alaska -Victims of storms and flooding that began on September 15, 2022. Filings extended until February 15, 2023. FEMA declaration number – DR-4672-AK.

For questions related to disaster tax issues please give this office a call.

Article Highlights:

Contractor Developer Credit
Retroactive Extension to 2022
Increased Credit 2023 through 2032
Prevailing Wage Requirements
Qualifications
Qualifying Residential Projects
Non-Refundable Credit
Basis Adjustment

As part of the Inflation Reduction Act, passed in August 2022, modifying Internal Revenue Code Sec. 45L, contractors will benefit from the increased tax credit for building Energy Efficient New Homes effective January 1, 2023. In addition, this credit that had previously expired after 2021, has been extended through 2032. For 2022, the old credit rules have been retroactively extended providing a $2,000 tax credit for site built home and a $1,000 or $2,000 tax credit for manufactured homes that meet the energy saving requirements of 50% for a site built home and 30% to 50% for manufactured homes. Beginning in 2023 and before 2033 the amount of the credit is increased, and can be $500, $1,000, $2,500, or $5,000, depending on which energy efficiency requirements the home satisfies and whether the construction of the home meets the prevailing wage requirements.

$2,500 Credit – for single family and manufactured homes when constructed per the standards set by the Energy Star Residential New Construction Program or the Manufactured Homes Program.
$5,000 Credit – for single family and manufactured homes when they are certified by the Department of Energy as a Zero Energy Ready Home.
$500 Credit – For multifamily homes when meeting the Energy Star Single Family New Homes Program.
$1,000 Credit – for multifamily homes when they are certified by the Department of Energy as a Zero Energy Ready Home.

Prevailing Wage Requirements – Under the prevailing wage requirements, for any qualified residence, the taxpayer must ensure that any laborers and mechanics employed by the taxpayer or any contractors or subcontractor in the construction of the residence are paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which the residence is located as determined by the Secretary of Labor. Failure to satisfy the prevailing wage requirements can be cured by paying to each affected worker an amount equal to the difference between the amount actually paid and the amount which would have been paid under the prevailing wages rules, plus interest, and paying a $5,000 penalty per affected worker. Qualifications – To qualify for the credit:

The home must be in the U.S.
The home must be sold, leased, or rented out.
The dwelling’s heating and cooling energy consumption should fall below certain national energy standards.
The dwelling unit must be certified to be at least 50% more energy efficient than a similar unit constructed per the 2006 International Energy Conservation Code, with at least 10% being derived from building envelope component improvements.

Qualifying Residential Projects – Various types of residential projects qualify for the tax credit, including:

Single-family homes (both track and custom builds)
Multi-family apartment and condominium projects (3-stories or less)
Assisted living facilities
Student housing
Substantial reconstruction or rehabilitation

Non-Refundable Credit – The tax credit is non-refundable, meaning it can only offset current tax liability and any excess is not refundable. However, it may be carried forward for up to 20 years by the builder or developer and used to offset tax liability in those years. . Basis Adjustment – The contractor must reduce the basis of the home for which the credit is claimed by the amount of the credit. Of course there will be further guidance and clarifications forthcoming related to the changes affecting the 2023 through 2032 credit from the IRS. If you have questions please give this office a call.

Article Highlights:

Itemized Versus Standard Deductions
Medical Expenses
Taxes
Charitable Contributions

If your tax deductions normally fall short of itemizing your deductions or even if you are able to itemize, but only marginally, you may benefit from using the “bunching” strategy. The tax code allows most taxpayers to utilize the standard deduction or itemize their deductions if that provides a greater benefit. As a rule, most taxpayers just wait until tax time to add up their eligible expenses and then use the higher of the standard deduction or their itemized deductions. If you want to be more proactive, you can time the payments of tax-deductible items to maximize your itemized deductions in one year and take the standard deduction in the next. For the most part, itemized deductions include medical expenses, property taxes, state and local income (or sales) taxes, home mortgage and investment interest, charitable deductions, and casualty losses. The “bunching strategy” is more commonly associated with medical expenses, tax payments and charitable deductions, although there are circumstances in which the other deductions might come into play. There are many opportunities to bunch deductions, and the following are examples of the bunching strategies most commonly used:

Medical Expenses – You contract with a dentist for your child’s braces. The dentist may offer you an up-front, lump sum payment or a payment plan. By making the lump sum payment, the entire cost is credited in the year paid, thereby dramatically increasing your medical expenses for that year. If you do not have the cash available for the up-front payment, then you can pay by credit card, which is treated as a lump-sum payment for tax purposes. If you use a credit card, you must realize that the credit card interest is not deductible, and you need to determine if incurring the interest is worth the increased tax deduction. Another important issue with medical deductions is that only the amount of the total medical expenses that exceeds 7.5% of your adjusted gross income (AGI) is actually deductible. So, there is no tax benefit in bunching medical deductions unless the expenses exceed this limitation. If the current year is an abnormally high-income year, you may, where possible, wish to put off making medical expense payments until the following year when the 7.5% threshold is less.
Taxes – Property taxes on real estate are generally billed annually at mid-year, and most locales allow property owners to make semi-annual or quarterly payments. Thus, you have the option of paying it all at once or paying in installments. This provides the opportunity to bunch the tax payments by paying one semi-annual installment or two quarterly installments and a full year’s tax liability in one year and only paying one semi-annual installment or two quarterly installments in the other year. In doing so, you are able to deduct 1-½ year’s taxes in one year and 50% of a year’s taxes in the other. If you are thinking of making the property tax payments late as a way to accomplish bunching, you should be cautious. The late payment penalty will probably wipe out any potential tax savings. This strategy won’t work if your mortgage payments include real property taxes that are held by the lender until the taxes are due, as you can only deduct the tax payments that the lender makes on your behalf during the tax year. If you reside in a state that has state income tax, the state income tax paid or withheld during the year is deductible as a federal itemized deduction. So, for instance, if you are paying state estimated tax in quarterly installments, the fourth-quarter estimate is generally due in January of the subsequent year. This gives you the opportunity to either make that payment before December 31st, and be able to deduct the payment on the current year’s return, or pay it in January before the January due date and use it as a deduction in the subsequent year. A few words of caution about the itemized deduction for taxes! Taxes are only deductible for regular tax purposes. So, to the extent you are taxed by the AMT (alternative minimum tax), you derive no benefits from the itemized deduction for taxes. Also, through 2025, the maximum amount per year that you can deduct on your federal return for state and local taxes (property taxes and state income or sales taxes) is $10,000 ($5,000 if using the married separate filing status).
Charitable Contributions – Charitable contributions are a nice fit for “bunching” because they are entirely payable at the taxpayer’s discretion. For example, if you normally tithe at your church, you could make your normal contributions during the year and then prepay the entire next year’s tithing in a lump sum in December of the current year, thereby doubling up on the church contribution one year and having no charity deduction for church in the other year. Normally, charities are very active with their solicitations during the holiday season, giving you the opportunity to make the contributions at the end of the current year or simply wait a short time and make them after the end of the year. Be sure you get a receipt or acknowledgment letter from the organization that clearly shows in which year the contribution was made.

If you think a “bunching” strategy might benefit you, please call this office to discuss the issue and set up an appointment for some in-depth strategizing.

October 17 – CorporationsFile a 2021 calendar year income tax return (Form 1120 or 1120-A) and pay any tax, interest, and penalties due. This due date applies only if you timely requested an automatic 6-month extension.October 17 – Taxpayers with Foreign Financial Interests
If you received an automatic 6-month extension of time to report your 2021 foreign financial accounts to the Department of the Treasury, this is the due date for Form FinCEN 114.
October 17 – Social Security, Medicare and withheld income tax If the monthly deposit rule applies, deposit the tax for payments in September. October 17 – Nonpayroll Withholding If the monthly deposit rule applies, deposit the tax for payments in September.October 31 –  Social Security, Medicare and Withheld Income Tax File Form 941 for the third quarter of 2022. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until November 10 to file the return.  October 31 –  Certain Small EmployersDeposit any undeposited tax if your tax liability is $2,500 or more for 2022 but less than $2,500 for the third quarter.October 31 –  Federal Unemployment TaxDeposit the tax owed through September if more than $500.

October 11 – Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during September, you are required to report them to your employer on IRS Form 4070 no later than October 11. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.October 17 – Taxpayers with Foreign Financial InterestsIf you received an automatic 6-month extension of time to report your 2021 foreign financial accounts to the Department of the Treasury, this is the due date for Form FinCEN 114. October 17 – Individuals If you have an automatic 6-month extension to file your income tax return for 2021, file Form 1040 and pay any tax, interest, and penalties due. October 17 –  SEP IRA & Keogh ContributionsLast day to contribute to a SEP or Keogh retirement plan for calendar year 2021 if tax return is on extension through October 17.

Article Highlights:

Discarding old tax records
Statute of limitations
Basis substantiation

Now that your taxes are complete and filed for the year, you are probably wondering what old tax records can be discarded. If you are like most taxpayers, you have records from years ago that you are afraid to throw away. To determine how to proceed, it is helpful to understand why the records needed to be kept in the first place. Generally, we keep ‘tax’ records for two basic reasons: (1) in case the IRS or a state agency decides to question the information reported on our tax returns, and (2) to keep track of the tax basis of our capital assets so that the tax liability can be minimized when we actually dispose of the assets. With certain exceptions, the statute for assessing additional tax is three years from the return due date or the date the return was filed, whichever is later. However, the statute of limitations for many states is one year longer than the federal statute of limitations. In addition to lengthened state statutes clouding the recordkeeping issue, the federal three-year assessment period is extended to six years if a taxpayer omits an amount that is more than 25% of the gross income reported on a tax return. In addition, of course, the statute doesn’t begin running until a return has been filed. There is no limit on the assessment period where a taxpayer files a false or fraudulent return in order to evade tax. If an exception does not apply to you, for federal purposes, most of your tax records that are more than three years old can probably be discarded. If you live in a state with a longer statute, then add a year or so to that number.
Example: Sue filed her 2021 tax return before the due date of April 18, 2022. She will be able to safely dispose of most of her records after April 18, 2025. On the other hand, Don files his 2021 return on June 2, 2022. He needs to keep his records at least until June 2, 2025. In both cases, the taxpayers should keep their records a year or two longer if their states have a statute of limitations longer than three years. Note: If a due date falls on a Saturday, Sunday or holiday, the due date becomes the next business day.
The big problem! The problem with discarding records indiscriminately for a particular year once the statute of limitations has expired is that many taxpayers combine their normal tax records and the records needed to substantiate the basis of capital assets such as stocks, bonds, and real estate. They need to be separated, and the basis records should not be discarded before the statute expires for the year in which the asset is disposed. Thus, it makes more sense to keep those records separated by asset. The following are examples of records that fall into this category:

Stock acquisition data — If you own stock in a corporation, keep the purchase records for at least four years after the year the stock is sold. This data will be needed in order to prove the amount of profit (or loss) you had on the sale. And if the result of those sales, and sales of other capital assets, is a loss that you’ll be carrying forward to future tax returns – loss exceeds $3,000 ($1,500 if filing as married separate) – keep the purchase and sale records for four years after filing the return on which the last of the loss is used up.
Stock and mutual fund statements — Many taxpayers use the dividends that they receive from a stock or mutual fund to buy more shares of the same stock or fund. The reinvested amounts add to the basis in the property and reduce gains when the stock is finally sold. Keep statements for at least four years after the final sale.
Tangible property purchase and improvement records — Keep records of home, investment, rental property or business property acquisitions, AND related capital improvements for at least four years after the underlying property is sold.

In addition, if you own a business that has a loss that creates a net operating loss (NOL) that you’ll be carrying forward to deduct in future years, you should keep all of the business’s records that substantiate income and expenses from the loss year for at least four years after filing the return on which the NOL deduction is used up. Have questions about whether or not to retain certain records? Give this office a call before tossing out those documents. It is better to be sure before discarding something that might be needed down the road.

Article Highlights:

Effective Years
Credit Percentage
Batteries
Worth the Cost?
Non-Refundable Credit
Maximum Credit
Qualifying Property
Who Gets the Credit?
When is the Credit Available?
Multiple Installations
Installation Costs
Basis Adjustment
Association or Cooperative Costs
Mixed-Use Property
Newly Constructed Homes
Utility Subsidy
Leased Installations

The Inflation Reduction Act signed into law by President Biden on August 16, 2022, gives new life to the federal tax credit for the purchase and installation costs of residential solar-power systems and provides guidelines allowing batteries to also qualify for the credit. The solar credit is a percentage of the cost of a solar electric system installed on a taxpayer’s first or second residence located in the U.S. Before the passage of the Inflation Reduction Act the solar credit was being phased out by slowly reducing the credit percentage from 30% to 22% over several years, and the credit was scheduled to end after 2023. The Inflation Reduction Act extends the credit through 2032 at 30% before phasing it out in years 2033 and 2034. Those who qualify for the credit in 2022 will receive a bonus, as the credit for 2022 was 26% under the prior law phase out, but the legislation has returned the credit to 30% for 2022. The following table summarizes the credit for the past and the future years under this the new legislation.

Applicable Year

Credit Percentage

Thru 2019

30%

2020-2021

26%

2022-2032

30%

2033

26%

2034

22%

After 2034

0%

Batteries – Emergency power outages imposed by utilities in fire prone areas during periods of high winds and low humidity, as well as in other disaster areas, can be a major inconvenience, especially for those that work from home, resulting in many taxpayers asking if storage batteries added to a solar installation would qualify for the credit. Before this law change the tax code was silent on whether storage batteries were eligible for the credit, although the IRS had issued a private ruling indicating that they would be allowed. The Inflation Reduction Act of 2022 amended the code by adding and defining the term ‘qualified battery storage technology expenditure.’ Thus clarifying that for expenditures made after December 31, 2022, battery storage technology which meets the following requirements will qualify for the credit:
(A) It is installed in connection with a dwelling unit in the United States that is used as a residence by the taxpayer, and (B) It has a capacity of not less than 3 kilowatt hours.
Homeowners who already have a solar installation can add a storage battery and qualify for the solar credit for the cost of the battery. Is a Solar System Appropriate For Your Circumstances? – Those TV adds tout how little your electric bill will be after you have a solar system installed. But they fail to consider the cost of the system itself and subsequent system maintenance. When you are making the decision whether to acquire a home solar system, you need to factor in the cost of the system (and the interest you will be paying if you are financing it) as compared to conventional electricity costs. How many years will it take to recover your cost? Do you plan to live in your home beyond that time? Is a solar system worth the cost? Electricity costs can vary significantly according to locale. Even if not financially beneficial, there are situations in which the cost may not be the deciding factor. Some areas experience frequent power outages; you may simply want to go green or go off the grid where electric service is not reliable. If you plan to go ahead with a solar installation, here are some of the issues you need to be aware of.

Non-Refundable Credit – The credit is nonrefundable, meaning it can only reduce your tax liability to zero. However, the portion of credit that is not allowed because of this limitation may be carried to the next tax year and added to the credit allowable for that year.
Maximum Credit – There is no specific maximum, however, and since it is not a refundable credit, the benefit may be spread over several years, and if not utilized by the time the credit is phased out, you may not get the benefit of the entire credit. Example: Suppose in 2022, your solar installation costs $25,000 and the installation was completed in 2022. That would qualify you for a solar tax credit of $7,500 ($25,000 x 30%). But suppose the income tax liability on your 2022 tax return is only $3,000. Then, the credit would reduce your tax liability to zero, and the other $4,500 ($7,500–$3,000) of the credit is carried over to your 2023 tax return, where the credit will be limited to that year’s tax amount. If your tax is again less than the amount of the credit, the excess credit carries to the following year, and so on, until the credit is used up or the credit expires. So if you are expecting the credit to offset your outlay for the cost in the first year you may be in for a surprise.
Qualifying Property – Both a taxpayer’s main and secondary residence qualify for this credit.
Who Gets the Credit? – It may come as a surprise, but you need not own the residence where the solar property is installed to qualify for the credit; you need only be a ‘resident’ of the home. The tax code does not specify that an individual must own the home, only that it is their residence. Example: A son lives with his mother, who owns the home. The son pays to have the solar system installed; the son is the one who qualifies for the credit.
When is the Credit Available? – The credit may be claimed on the tax return of the year during which the installation is completed. Example: If you purchase and pay for a system installation that is completed in 2022, the credit will be claimed on your 2022 return. However if you pay for the installation in 2022 and the installation is not completed until 2023, then the credit is claimed on your 2023 return.
Multiple Installations – The credit is available for multiple installations. For instance, after the initial installation, if you add additional solar panels to increase capacity, these would be treated as original installations and qualify for credit at the credit rate applicable for the year the additional installation was completed. On the other hand, if you had to replace damaged panels or perform other maintenance on the system, these costs would not be for an original system and would not qualify for the credit.
Installation Costs – Amounts paid for labor costs allocable to onsite preparation, assembly, or original installation of property eligible for the credit—or for piping or wiring connecting the property to the residence—are expenditures that qualify for the credit. This includes expenditures relating to a solar system installed on a roof or ground-mounted installations.
Basis Adjustment – With respect to a home, the term ‘basis’ generally refers to the cost of the home plus improvements and is the amount subtracted from the sales price to determine the gain or loss when the home is sold. The cost of a solar system adds to a home’s basis, but because the solar credit is a tax benefit, the credit reduces the basis. This will generally create a different basis for federal and state purposes where a state does not provide a solar credit, or it differs from the federal solar credit amount.
Association or Cooperative Costs – If you are a member of a condominium association for a condominium you own or are a tenant-stockholder in a cooperative housing corporation, you are treated as having paid your proportionate share of any qualifying solar system costs incurred by the condo, cooperative association, or corporation.
Mixed-Use Property – In cases in which you use a portion of your residence for deductible business or rent part of your home to others, the expenses must be prorated, and only your personal portion of the qualified solar costs can be used to compute the credit. There is an exception if 20% or less of the property is used for business purposes, in which case the full amount of the expenditure is eligible for the credit.
Newly Constructed Homes – If you are planning on purchasing a newly constructed home that includes a solar system, you may be entitled to claim the solar credit. However, to do so, the costs of the solar system must be stated separately from the home construction costs and the appropriate certification documents must be available.
Utility Subsidy – Some public utilities provide a nontaxable subsidy (rebate) for the purchase or installation of energy-conservation property. In that case, the cost of the solar system eligible for the credit must be reduced by the amount of the nontaxable subsidy that was received, so only your net cost is eligible for the credit.
Leased Installations – When a solar installation is leased, the lessor gets the credit, not the home resident.

As you can see, there is a lot to consider before making the final decision to install a solar system. Is it worth it, and is it the right financial move for you? Please call for a consultation before signing any contract to make sure a solar system is appropriate for you tax wise.

Article Highlights:

Credit History
New Law Enhancements
Extensions
Credit Limits
Home Energy Audit
Identification Number Requirement
Other Credit Issues

Going all the way back to 2006, except for 2008, the federal tax code has offered a tax credit for making energy-saving improvements to a taxpayer’s home. This credit had expired after 2021 but has been given renewed life and substantially enhanced by the Inflation Reduction Act of 2022. Under the old law the credit had a lifetime cap of $500, which many taxpayers had taken advantage of in the previous 16 years, while others could not remember if they had used the entire lifetime credit during those years. As a result, with a lifetime cap of only $500, and a small credit rate of only 10%, the credit had become less of an incentive for taxpayers to make energy saving improvements to their homes and was frequently disregarded. Now with the passage of the Inflation Reduction Act of 2022, this credit once again becomes a meaningful incentive for taxpayers to make energy-saving improvements to their homes. The new legislation not only did away with the minimal $500 lifetime limit by replacing it with a $1,200 annual limit, but it also increased the credit rate from 10% to 30%. The legislation also made the changes retroactive to include home energy-saving improvements for 2022 and extending the credit through 2032. As before, under prior law, there are certain credit limits that apply to the various types of energy-saving improvements. Although not a complete list, the following are credit limits that apply to various energy-efficient improvements under the new law:

$600 for credits with respect to residential energy property expenditures, windows, and skylights.
$250 for any exterior door ($500 total for all exterior doors).
$300 for residential qualified energy property expenses
Notwithstanding these limitations, a $2,000 annual limit applies with respect to amounts paid or incurred for specified heat pumps, heat pump water heaters, and biomass stoves and boilers.
The $1,200 credit amount is increased by up to $150 for the cost of a home energy audit.
The new law adds Air Sealing Insulation as a creditable expense.
However, the new law eliminates treatments of roofs as creditable after 2022.

Under the new law, the one making the improvements and claiming the credit need only be a resident of the home and not necessarily the owner. Home Energy Audit – A home energy audit is an inspection and written report for a dwelling unit located in the United States and owned or used by the taxpayer as the taxpayer’s principal residence which:

Identifies the most significant and cost-effective energy efficiency improvements with respect to such dwelling unit, including an estimate of the energy and cost savings with respect to each such improvement, and
Is conducted and prepared by a home energy auditor that meets the certification or other requirements specified by IRS. The amount of the credit allowed with respect to a home energy audit can’t exceed $150.

Identification Number Requirement – The Act added a new provision that bars the credit unless the energy-saving item is produced by a qualified manufacturer, and the taxpayer includes the qualified product identification number of the item on their tax return for the tax year the credit is claimed. However that requirement does not take effect until after December 31, 2024, giving qualified manufacturers time to comply. Other Credit Issues:

It is a nonrefundable personal tax credit and allowed against the alternative minimum tax (AMT) if the taxpayer is subject to the AMT.
There are no credit carryover provisions if the credit is not fully utilized in the year of the home energy improvements.
Unlike the solar credit , this credit doesn’t have any specific prohibitions against swimming pools or hot tubs.

If you have questions related to how you might benefit from the enhanced and extended tax credit for making energy-saving improvements to your home, please give this office a call.

Article Highlights:

Assembly Requirement
August 15 Deadline
Transition Rule
The New Law
Income Limit
Manufacturer’s Suggested Retail Price Limitation
New Vehicle Definition
Transfer of Credit to the Dealer
Credit for Used Vehicles

With the recent passage of the Inflation Reduction Act of 2022, the electric vehicle credit has undergone some major changes. Although most of the changes take effect in 2023, to qualify for the current credit, vehicles purchased after August 15, 2022, are required to meet the final assembly requirement of the new law. That requirement necessitates vehicles sold after August 15, 2022, undergo final assembly in North America. “Final assembly” means the manufacturer must produce new clean vehicles at a plant, factory, or other place located in North America from which the vehicle is delivered to a dealer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle. The U.S. Department of Energy has prepared a preliminary list of Model Year 2022 and early Model Year 2023 vehicles that may meet the final assembly in North America requirement. Although the current law phasing out the credit once a manufacturer has produced 200,000 vehicles has been eliminated beginning in 2023, it still applies for vehicles sold in 2022. Even though those vehicles meet the final assembly requirement, because of the 200,000 limit they may not qualify for credit or reduced credit in 2022 but will again qualify in 2023 under the new rules. The U.S. Department of Energy list tags those that have reached the 200,000 limit. Visit the IRS site for a list of qualifying vehicles to see if a vehicle might still qualify for a reduced credit.
Transition Rule – The legislation also provides a transition rule where a taxpayer who, from January 1, 2022, and before August 16, 2022, purchased, or entered a written binding contract to purchase, a new plug-in electric drive motor vehicle and placed that vehicle in service on or after August 16, 2022, may elect to use the credit rules in effect before the Inflation Reduction Act changes, thus avoiding the final assembly and other requirements of the new law.
The New Law – The new law, generally effective beginning January 1, 2023, includes some new stringent requirements including that the critical minerals and other battery components used in the manufacture of a qualifying vehicle be from North America. Because of the current limited availability of these critical minerals this requirement is being phased in through 2029, giving manufacturers time to develop North American sources for these materials. Also beginning 2023, the law imposes income limits on who qualifies for the credit, as well as limiting the cost of the vehicles eligible for the credit as follows:
Income limit – No credit is allowed for any tax year if the lesser of the modified adjusted gross income (MAGI) of the taxpayer for the:

Current tax year, or
The preceding tax year

Exceeds the threshold amount as indicated in the table below. Thus there is no phaseout; just one dollar over the limit and no credit will be allowed.

MAGI LIMITATION

Filing Status
MAGI

Married Filing Joint & SS
$300,000

Head of Household
$225,000

Others
$150,000

MAGI means adjusted gross income increased by any foreign earned income and housing exclusions and excluded income from Guam, American Samoa, the Northern Mariana Islands, and Puerto Rico. Manufacturer’s Suggested Retail Price Limitation – No credit is allowed for a vehicle with a manufacturer’s suggested retail price more than the following:

MANUFACTURER’S SUGGESTED RETAIL PRICE LIMITATION

Vans, sport utility vehicles, and pickups
$80,000

Other vehicles
$55,000

New Vehicle Definition – Where under prior law a qualifying vehicle was required to have a battery with a minimum of 4 kilowatts-hours, after 2022 a qualifying vehicle’s battery must be a minimum of 7 kilowatts-hours. Transfer of Credit to the Dealer – After 2022, the new law adds an interesting twist that allows a taxpayer to utilize the credit to reduce the vehicle’s cost. This is accomplished by the taxpayer, who, on or before the purchase date, can elect to transfer the clean vehicle credit to the dealer from whom the taxpayer is purchasing the vehicle in return for a reduction in purchase price equal to the credit amount. Making the election cannot limit the use or value of any other dealer or manufacturer incentive to buy the vehicle, nor can the availability or use of the incentive limit the ability of the taxpayer to make the election. A buyer who has elected to transfer the credit for a new clean vehicle to the dealer and has received credit from the dealer but whose MAGI exceeds the applicable limit is required to recapture the amount of the credit on their tax return for the year the vehicle was placed in service. Credit For Used Vehicles – The new law includes a credit for used clean vehicles that cost $25,000 or less that are purchased from a dealer. This credit is limited to the first time the vehicle is resold, and available only to taxpayers whose MAGI is no more than half that of the MAGI limit for the new clean vehicle credit. The credit amount is the lesser of $4,000 or 30% of the purchase price. However, other details of this credit need further guidance from the IRS. Watch for additional information in the future. If you have questions about these new rules on the clean vehicle credit, please give this office a call.