Many landlords are wondering which tax breaks they’ll receive from the Inflation Reduction Act (IRA) of 2022. Can landlords take tax breaks for purchasing electric stoves? How about heat pumps? What’s the deal with home energy audits or solar panel installations? As always, it’s nuanced. Let’s dig in.
What is the Inflation Reduction Act of 2022?
The IRA is a new law, as of August 16, 2022, with many of the benefits starting January 1, 2023, and some benefits retroactively applying to 2022. The law aims to incentivize taxpayers to reduce carbon emissions over the next ten years, among other aims. The way the law is structured, taxpayers can receive up to $3,200 annually for home energy improvements and upgrades, split out into different money caps for each change. This allows for spreading changes out over several years instead of feeling pressure to make changes in a short period of time. Some of these incentives will apply to landlords, but other benefits may or may not apply depending on a landlord’s situation.
Which tax breaks can landlords take?
All landlords
Energy-Efficient Home Credit
The IRA modifies and extends the Energy Efficient Home Credit (IRC Sec. 45L), which you may already be familiar with. Elements of this tax credit apply to landlords. If property owners rehabilitate a single- or multi-family home that they lease to make it more energy efficient, they may be eligible for up to a $5,000 credit. To qualify for the maximum credit, it requires you to pay a prevailing wage requirement to workers who perform the labor. The Environmental Protection Agency’s program outlines the requirements, which can change by state or region. If you decide to pursue this credit, be sure to consult a tax expert. It requires understanding various details and some complex calculations.
Some landlords
If you lease a portion of your primary dwelling, then several IRA tax breaks or rebates apply to you:
- Electric stove, cooktop, range, or oven: If you purchase one of these electric appliances, you may be able to receive a full rebate depending on your area and household eligibility. These electric appliances offer better energy efficiency than gas stoves and will reduce pollutants in your living space.
- Electric heat pump clothes dryer: Depending on household eligibility, a purchase of an electric heat pump clothes dryer may be covered for 100% of the purchase and installation costs with available rebates.
- Solar panels: When you put in solar panels, you can receive up to 30% of the installation cost back in federal tax credits. Additionally, if your state offers incentives for installing solar panels, you can claim compensation from both state and federal entities.
- Weatherization services: Working to reduce how much energy your home leaks can also provide tax breaks and rebates. When you conduct a home energy audit to find where your home is leaking most, you can receive up to $150 back. If you replace an external facing door, you can receive up to 30% of the project cost, up to $250 (limit of two external facing doors per year). When you replace windows, you can receive up to 30% of the project cost back, up to $600. You can also claim 30% of project costs for improving your insulation and sealing air spaces, up to $1,200.
- Energy efficient heat pumps and heat pump water heaters: The IRA could cover these purchases up to 100% with available tax credits and rebates, depending on household eligibility.
- Electrical breaker box and/or wiring upgrade: With new upgraded appliances, you may need to upgrade your electrical box, and some of this upgrade is covered, 30% of the project up to $600 through rebates and tax breaks.
The IRA has not been fully detailed out yet. The appropriate federal entities will be sending more information to the state levels this coming summer, so be sure to check on your local level for incentive programs, so you know how to benefit. Also, be sure to find a tax professional familiar with and capable of helping you claim all these tax breaks. Some may apply to your 2022 taxes, so be sure to review any changes you’ve made this past year to see if you qualify. It may be worth a discussion before you start a project just to be sure you can maximize your claims.
As with any improvement projects and purchases, you can track the details and keep the documentation on TenantCloud’s software. This will help you easily access the documents when you need them so you can maximize your benefits.
Sources:
-https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_one_page_summary.pdf
https://www.landlordstudio.com/blog/the-inflation-reduction-act-landlords
https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics
https://www.naahq.org/what-passing-inflation-reduction-act-means-rental-housing-providers
https://deq.nc.gov/energy-climate/state-energy-office/inflation-reduction-act-home-rebates
https://www.energystar.gov/about/federal_tax_credits/windows_skylights
