Yay! It’s tax time!
You may be eligible for deductions to your 2023 federal tax bill! The Inflation Reduction Act (IRA) was signed into law by the Biden Administration in August of 2022. The IRA provides you with tax credits, direct reductions of your tax liability or the amount your 1040 tells you that you owe the IRS, for installing various energy efficiency upgrades to your primary residence. Did you install a cold climate heat pump in your home in 2023? For an air source heat pump installed this past year, the credit is as high as $2,000, or 30% of the total cost of the heat pump and its installation. Nearly everyone who installs a heat pump will get the full $2000 credit as the cost of an average heat pump and wiring stands around $7,500.
The IRA tax credits fall under the name ‘Energy Efficient Home Improvement Credit (25C)’ and may include other improvements that might have been part of your upgrade list. For example, did your heat pump installation require a new electrical panel or sub-panel with new 200 amp service? You can receive 30% of these costs as well, including labor, for up to $600 in additional credit. Wiring of the heat pump is not eligible. Did you install any exterior doors, windows, or maybe insulation? The purchase cost of these upgrades are all on the credit list! For full tax credit details, take a look at our IRA FAQ page. Credits can add up to an additional $1,200 on top of the heat pump tax credit, maxing out in 2023 at $3,200.
To claim your credits, fill out form 5695, Residential Energy Credits. Your cold climate heat pump get listed on line 22a. Find the form instructions here. The credits are applicable for the year the improvements were made, not the year when the expenses were paid.
These tax credits you’ve hopefully heard of are different from the IRA rebates that are starting to be talked about. IRA tax credits lower your total tax owed (if you owe any to begin with) and IRA rebates in part will lower the up-front prices of energy improvements. IRA rebates are not yet available and may not be available until later this year. Alaska Heat Smart will have more detailed information on IRA rebates in an upcoming post. Call us for me information at 907.500.5050.
Looking for other financial assistance to help you with the addition of a heat pump, help you save money, enjoy a warmer and drier house, and move beyond oil? Check out our diverse Financial Assistance Programs. Alaska Heat Smart staff do not claim in any way to be tax experts. We strongly encourage you to consult your tax professional for any questions or concerns that you may have with filing your 1040.