Heat pump: Inflation reduction act

Forum|Forum|3 years ago
August 14, 2022
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When Inflation reduction act goes effective, there is a $2,000 tax credit for installing heat pumps. ‘‘Sec. 25C. Energy efficient home improvement credit.’’.

Is it applicable to heat pumps installed in between Jan 1, 2022 and Dec 31, 2022? Or, what's the meaning of below line.

https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_of_2022.pdf

- Page 351 says "(2) EXTENSION OF CREDIT.—The amendments 2 made by subsection (a) shall apply to property placed 3 in service after December 31, 2021. "

Best answer by Opus 17

@Yoyoguy

It’s very difficult because you have to read the entire section of the act from page 338 through 351 and you have to cross reference back to the current law section 25C.

After the sentence you quoted, it also says this:

EXTENSION OF CREDIT.—The amendments made by subsection (a) shall apply to property placed in service after December 31, 2021.

Section a is the extension of the expiration date only. So the combination of the two statements seems to indicate to me, that the credit is extended as is (10% and $500 lifetime maximum) retroactive to January 1, 2022. However, the enhanced credit of 30% with a $1200 (or $2000) annual limit is effective on January 1, 2023.

This is actually pretty sensible, because it gives people and the IRS time to plan, and reverse is a trend of Congress making huge changes to the tax laws retroactively. However, if I read it correctly, you will want to hold off installing a new heat pump until next year, if you can.

I am not a tax attorney, and you should wait for more authoritative explanations.

Critter-3

https://ttlc.intuit.com/community/tax-law-changes/discussion/inflation-reduction-act-how-will-my-refund-be-affected/00/2763403

YoyoguyAuthor

The post does not answer my question though.

Opus 17

Section 25C, before the act, provided a 10% credit for installation of efficient doors, windows, insulation, heat pump, air conditioner or furnace, with an annual and lifetime cap of $500. The credit expired at the end of 2021.

The act modifies section 25C as follows:

1. the credit percentage is increased to 30%

2. the credit is extended to 2032.

3. The lifetime cap is removed.

4. There is an annual cap of $1200, with individual caps of $600 for windows, $500 for doors, and $600 for energy efficient "property" (which generally includes furnaces, hot water heaters and air conditioners.

5. Regardless of the $1200 annual cap and $600 cap for "property", there is a separate $2000 cap for a heat pump, heat pump hot water heater, or biomass stoves and boilers.

6. The definition for efficiency for a heat pump to qualify has been changed to

"which meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year in which the property is placed in service."

There are a number of other changes that are not relavant to your question.

[Edited to correct]

So to your question, installation of a qualified heat pump in 2022 is eligible for a credit of 30% of the cost (including installation), up to a maximum of $2000, assuming it meets the required efficiency standard.

The law specifies that the changes take effect in 2023. Property placed in service in 2022 only receives a 10% credit with a lifetime cap of $500. The enhanced 30% credit and higher caps take effect for property placed in service after December 31, 2022.

YoyoguyAuthor

Thanks @Opus 17 Can you help me understand what this "December 31, 2022" about though?

Page 350 says,
(1) IN GENERAL.—Except as otherwise provided by this subsection, the amendments made by this section shall apply to property placed in service after December 31, 2022.

Opus 17Answer

@Yoyoguy

It’s very difficult because you have to read the entire section of the act from page 338 through 351 and you have to cross reference back to the current law section 25C.

After the sentence you quoted, it also says this:

EXTENSION OF CREDIT.—The amendments made by subsection (a) shall apply to property placed in service after December 31, 2021.

I am not a tax attorney, and you should wait for more authoritative explanations.