With President Joe Biden signing the Inflation Reduction Act into law on Aug. 16, it marks one of the biggest spending packages in American history at $750 billion, per CNN. In total, $430 billion will be put towards fighting climate change, reducing prescription and healthcare costs and enacting tax reform.
The new legislation provides a number of ways American families can save, particularly by investing in some of the eco-friendly measures like electric vehicles and solar panels. But within the language of the act, it hasn’t been totally clear which provisions are rebates that put money back in consumers’ pockets at the point of purchase — and which are tax credits to take advantage of at filing time.
Rebate: Energy Efficient Home Appliances
Though it will take some time to institute, in the coming years there will be point-of-sale rebates for certain energy efficient appliances.
Consumers will be able to save up to $8,000 for a heat pump system, up to $1,750 for a heat pump-enabled water heater and up to $840 for converting to an electric stove/cooktop/oven, as well as the same amount for an electric pump dryer for laundry. There are also options for up to $4,000 for upgrading breaker boxes, up to $2,500 for installing (or upgrading) electric wiring and up to $1,600 for insulation, air sealing, and ventilation upgrades.
Any delays may come down to the fact that states will have to institute a rebate system related to applying for the money, as noted by NPR — who spoke with Lowell Ungar, director of federal policy with the American Council for an Energy-Efficient Economy. The rebate amounts will be offered on a sliding scale, with more funds being allocated to lower-income families, per NPR.
In the interim, however, making many of these improvements can offer a 30% maximum tax credit through 2032, and the credit is retroactive (beginning in 2022) if you’ve already taken these measures, News Nation detailed.
Tax Credit: Electric Car Purchases
If you’re in the market for an electric vehicle, you’ll be able to get a tax credit in the year you purchase it: up to $4,000 for a used EV and up to $7,500 for a new model.
It’s important to note, however, that there are strict criteria for the credits — including the fact that a high percentage of materials must be manufactured in the United States for any particular model to qualify. Further, there are limits on the sticker price for the vehicle (up to $55,00 for sedans and $80,000 for trucks/SUVS) as concerns eligibility for the purchase credit.
Tax Credit: Solar Panels
Upgrading your home to operate on clean energy can provide some great incentives starting in 2023. If you install solar panels, for example, you can take a 30% tax credit on pertinent costs at the end of the year — that percentage cap remains intact until 2032, and goes down a few points in subsequent years.
The Center for Sustainable Energy notes that a home solar system can cost around $15,000 to 25,000, so the new credit can be significant. These credits are retroactive, so if you have already installed this type of home modification, you may be in luck.
Inflation Reduction Act: Medicare and ACA Insurance
There are also some automatic savings on the way as part of the Inflation Reduction Act, particularly in the realm of health care. Medicare Part D recipients will see a cap of $2,000 on prescriptions every year, and those with health insurance through the Affordable Care Act will notice up to $800 in lower annual costs for premiums.
To pay for the $430 billion spending package, the government will target the wealthiest corporations to pay more taxes — with the Biden administration vowing that no individual or family making under $400,000 will see an increase in their tax rates.
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