New Energy Credits

[Beersheba]

I've taken a look at the new energy credits from the recently passed "Inflation Reduction Act." They are overwhelming, with yet another government attempt to force or entice people to buy electric cars.

But that's not all. Dozens of new circumstances, such that I doubt Form 5695 will be able to accommodate them all.

The most unimaginable are the so-called "lifetime" credits, placing a limit on how much credit can be taken cumulatively. Going back to as far as 2007.

How do you handle a new client who walks in to ask you to prepare 2022 personal taxes, and part of your due diligence is to find out how many energy tax credits he has taken since 2007? Ask him to bring in 15 years worth of tax returns?? Don't worry, that won't happen. He would rather go across town to someone else.

[New York Enrolled Agent]

The lifetime cap in section 25C is NOT new - we’ve been asking the cumulative questions for a number of years. You should have been doing that due diligence for 2021 returns.

Effective for expenditures after 1/1/2023 the lifetime caps are gone and replaced by annual caps.

[Beersheba]

I suppose I left the impression that I have not been asking about cumulative credits prior to this year. That is not the case - that is part of my verbal questionnaire for years. I believe 2/3 of my clientele have been with me since 2007 and I have kept records for them such that the question was not necessary.

Thanks for the information about 01/01/23 lifetime caps leaving us. Beginning in that year, the problem is gone.

[Rapid Robert]

I don't know where 2007 came from, the lifetime cap applies to years after 2005. I consider it a cap on a single credit, not "caps" on "credits" as referred to in this thread, although it is true that within the $500 lifetime cap, there was a sub-cap for windows.

"I doubt Form 5695 will be able to accommodate them all."

Really? They have a year to implement most of the changes, it's far from the most complicated tax law that the IRS has had to translate into a form.

Here is a summary of the changes from an industry newsletter. It appears that this will really help incentivize better energy conservation by homeowners.

"The nonbusiness energy property credit expired after 2021. The credit is renamed the “energy
efficient home improvement credit.” The Act extends the credit through 2032. The Act also
modifies the credit beginning with property placed in service during 2023. Modifications include:

The credit applies to qualified expenditures made for the taxpayer’s residence but need not
be for the taxpayer’s main residence.
The credit percentage is increased from 10% to 30% of qualified expenditures, with dollar
limits continuing to apply to specific items. There is a general $600 per item cap.
The previous $500 lifetime limitation is eliminated. Instead, there is a general $1,200 per
taxpayer per year limitation but see the exception below.
The credit is $600 for windows and skylights (increased from $200) and $250 for
one exterior door ($500 for all exterior doors).
The credit is $2,000 for geothermal and air source heat pumps and biomass stoves.
Note that this is an exception to the $1,200 annual limit.
Qualified expenditures include home energy audits (limited to $150).
Qualified building envelope components no longer include roofs but do include air sealing
insulation.
A qualified product identification number requirement will apply after 2024. The ID number
will be assigned to qualified manufacturers by the IRS per agreement."