Clean Energy Tax Credits for High Earners

The 2022 Inflation Reduction Act

The 2022 Inflation Reduction Act (IRA)— which allows U.S. homeowners to claim a clean energy tax credit for up to 30 percent of the cost of qualified energy efficiency improvements (e.g., solar panels, batteries, etc.)—is the single largest investment in climate and energy in American history, according to the U.S. government’s Loan Programs Office.

The IRA is intended to mitigate the adverse effects of climate change.

For this discussion, let’s focus specifically on residential clean energy tax credits, a key credit available for high earners.

Key Action: Energy Audit

Before facilitating a home energy improvement project, first complete an energy audit using a qualified professional. The results will help you prioritize projects and optimize tax credits. In 2023, the IRA expands credits to cover home energy audits.

Solar Tax Credit (aka Investment Tax Credit)

There are no income limits to qualify for the solar tax credit, creating long-term savings for high-net-worth individuals.

The solar tax credits are expected to cut the cost of installing rooftop solar for a home by 30%, or more than $7,500 for an average system, and provide an additional average savings of $9,000 on electricity bills over the life of the system.

 “Those who install a PV system between 2022 and 2032 will receive a 30% tax credit,” according to Energy.gov. “That will decrease to 26% for systems installed in 2033 and to 22% for systems installed in 2034. If you’ve already installed a system in 2022, your tax credit has increased from 22% to 30% if you haven’t already claimed it.”

To qualify for the solar tax credit, keep the following five points in mind:

#1. The system must be located at your home within the U.S.

#2. You must own the system (financing is allowed) and you may not receive payment in exchange for generating electricity.

#3. If your utility company subsidizes your solar installation, then generally you must subtract the rebate from your system costs before calculating the credit. (State tax credits for solar PV installation typically don’t reduce federal tax credits.)

Energy.gov gives the following utility rebate example:

If your solar PV system installed in 2022 cost $18,000, and your utility company gave you a one-time rebate of $1,000 for installing the system, your tax credit would be calculated as follows: ($18,000 – $1,000) x 0.30 = $5,100.

#4. You can roll back your tax credit by one year and carry the credit forward for up to five years.

#5. There is no maximum project installation amount that can be claimed. However, you can’t receive a credit beyond what you owe in federal taxes.

Tip: While optimizing residential clean energy tax credits, remember to maximize your executive compensation benefits. Always view your financial situation holistically.

New All-Electric and Plug-In Hybrid Vehicles Tax Credits

According to the U.S. Department of Energy, “All-electric and plug-in hybrid cars purchased new in or after 2010 may be eligible for a federal income tax credit of up to $7,500. The credit amount will vary based on the capacity of the battery used to power the vehicle. State and/or local incentives may also apply.”

Some IRA clean energy tax credits do have income limits, including for electric vehicles.

For example, you won’t qualify for the EV (electric vehicle) tax credit if you’re single with a modified adjusted gross income over $150,000, married filing jointly with income over $300,000 or head of household earning $225,000 or more.

Nevertheless, even if this credit doesn’t apply to you, perhaps it can help a loved one, like an adult child, sibling or parent.

Tip: For many, it’s only a matter of time before you must help your parents manage their day-to-day lives. Be informed. Read our special report, Helping Your Aging Parents.

In Summary

With the widespread availability of residential clean energy tax credits, there’s never been a better time to make home energy improvements. Remember to begin the process with a professional home energy audit (saving you time and money) and retain all receipts for tax reporting.

Start your audit research with your utility company. Most have energy rebate programs and often include free audits. Also check out the Home Performance with ENERGY STAR® program for energy financing programs.

If you have further questions regarding tax credits, speak with your accountant or contact Adviser Investments anytime for assistance. We pride ourselves on being The Planner You Can Talk To.

And for the latest tax updates, visit our tax planning center.