Homeowners Would Get $1,200 Climate Tax Credits in New Spending Bill
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Here's your Money Briefing for Wednesday, August 10th. I'm J.R. Whalen for The Wall Street Journal. Addressing climate change is one of the hallmarks of the Inflation Reduction Act that passed the Senate last weekend. But something you might not be aware of in the bill are the $1,200 annual tax credits and incentives for homeowners to make energy-efficient improvements to their homes.
Well, a tax credit is much more valuable than a deduction because a tax credit reduces your tax bill dollar for dollar.
Coming up, we'll talk with our personal finance reporter, Ashley Ebling, about the types of home improvements that are covered in the bill, as well as how consumers can potentially save money beyond the tax credits. That's after the break.
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The Inflation Reduction Act approved by the Senate last weekend includes nearly $15 billion in tax credits for homeowners to make energy efficient improvements to their homes. WSJ personal finance reporter Ashleya Ebeling has been going through the bill to find out what it could mean for homeowners' finances.
What is the Inflation Reduction Act provision affecting homeowners introduced at the start of the episode?
And she's here with details. Ashleya, thanks for being with us.
Nice to be here.
All right, Ashleya, there's a lot to unpack here. First of all, the legislation has a $1,200 annual tax credit for what's described as green remodeling. What does that mean?
Well, there's a great benefit for homeowners who are doing green remodeling. It means energy efficient improvements. And the new credit, you'd be able to claim a 30% credit. That's basically like getting a 30% discount on your remodeling project. It could be for insulation, for windows, and even replacing a front door with an energy efficient front door. And the big change in this bill, the home improvement credit's been around for a while with a $500 lifetime cap. So the new changes actually make it that you could take this every year for 10 years, which is a big difference than the $500. So now the cap, instead of the $500 lifetime cap, there's the $1,200 per year annual cap.
Now, how does this tax credit differ from, say, a tax deduction?
Well, a tax credit is much more valuable than a deduction because a tax credit reduces your tax bill dollar for dollar. One caveat is that under this credit, you can't carry over unused credits to future years, so you actually have to have tax liability to take the tax credit. There's another stipulation. The improvements have to be made to a primary residence, not a second home.
Okay, got it. Now, you mentioned things like insulation or windows and doors before, but if somebody wanted to put solar panels on their roof, how would the bill benefit them?
That's a great question. There's actually a separate energy tax credit for solar, small wind, and geothermal projects that people can put on their residences. There's a 30% tax credit, and there's no cap on how big of a credit taxpayers can claim. The new bill extends it for 10 years, and taxpayers can actually take both credits.
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