Understanding IRA Tax Credit Incentives
Tax credits provide a dollar-for-dollar reduction in the amount of Federal income tax you would otherwise owe.
Tax credits are claimed on your annual tax return for the tax year the purchase was made. IRA tax credits became available on January 1, 2023, meaning Virginians can claim credits on eligible purchases now through 2032.
Tax Credits for Making Your Home More Energy Efficient – up to $3,200 annually
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This legislation significantly expands the 25C tax credit, now called the Energy Efficient Home Improvement Credit, and extends it for 10 years. Homeowners can receive a tax credit equal to 30 percent of the cost of all eligible energy efficient home improvements made during the year. The annual amount homeowners can claim for heat pumps, heat pump water heaters or biomass stoves is capped at $2,000. Upgrade costs eligible for the credit can include equipment, installation and labor costs. Homeowners can also claim up to $1,200 for other energy-efficient improvements including up to: $150 for a home energy audit, $250 for a new exterior door ($500 total for all exterior doors), $600 for new exterior windows and skylights, $1,200 for insulation and $600 for an upgraded electrical panel.
For more information, check out this IRS FAQ on the 25C credit and this ENERGY Star Guide on qualifying purchasesFact Sheet.
Tax Credits for Residential Clean Energy – 30 percent tax credit
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This 30 percent credit applies to purchase and installation costs for:
- Solar panels
- Solar water heaters
- Fuel cell property expenditures
- Small wind turbines
- Geothermal heat pumps
- Battery storage systems
For more information, check out this IRS FAQ on the 25D tax credit, this ENERGY Star Guide on qualifying purchases and this Department of Energy guide to the Rooftop Solar tax credit .
Tax Credit for a new Electric Vehicle – up to $7,500 in savings
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The legislation makes it less expensive to purchase a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) by modifying the existing federal tax credit known as IRS Code Section 30D and extending it for 10 years. Learn more about how you can get up to $7,500 for buying a new EV. The law introduces new eligibility requirements for the credit based on buyer income, vehicle price, vehicle assembly location, battery manufacturing location, and battery component origin.
Qualifying buyers are limited to individuals with a modified adjusted gross income less than $150,000 (or $300,000 for joint filers). Qualifying vehicles must have a Manufacturer Suggested Retail Price (MSRP) of less than $55,000 (or $80,000 for vans, SUVs or pick-up trucks), and meet certain battery manufacturing and component criteria.
Note: The manufacturing and component criteria are effective on April 18, 2023. Vehicles delivered before that date are not subject to the updated criteria. Vehicles possessed on and after April 18, 2023 ARE subject to manufacturing and component criteria, even if the purchase was made before that date. To claim the credit, file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles) with your tax return.
Tax Credit for a Used Electric Vehicle – up to $4,000 in savings
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To help make EVs more affordable to more Americans—and help them save money on gas long-term—the bill establishes a new tax credit for used EVs called the Previously-Owned Clean Vehicle Credit (25E). Qualifying buyers can use this credit to get a discount of 30 percent off the cost of a used EV—up to a maximum of $4,000. To qualify for this credit, buyers must have a MAGI of less than $75,000 (or $150,000 for joint filers). Qualifying vehicles must have a MSRP of less than $25,000, weigh less than 14,000 pounds, and be at least two years old (model year must be at least two years older than the year of sale.)
Purchases must be made through a dealer. To claim the credit, complete Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles and New Clean Vehicles), and file it with your tax return for the year you took possession of the vehicle.
Tax Credit for a home EV Charger – up to $1,000 in savings
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The Alternative Fuel Vehicle Refueling Property Credit (30C) was extended for 10 years. Homeowners residing in eligible lower-income or rural census tracts can get a tax credit of 30 percent of the cost of installing a home EV charger on their property for up to $1,000.
Tax Credit for a Multifamily Residential and Business EV Charger – up to $1,000 in savings
This Alternative Fuel Vehicle Refueling Property Credit (30C) may also be available for multifamily residential complexes and other businesses who wish to install EV chargers for residents and customers. More information on how to claim the 30C tax credit is available on the IRS website.