American consumers have embraced the clean energy tax breaks offered by the Inflation Reduction Act, claiming a total of $8.4 billion for 2023, according to Internal Revenue Service (IRS) data. This figure surpasses earlier projections and reflects strong interest in energy efficiency upgrades.
Popularity of the Tax Breaks
More than 3.4 million U.S. households claimed at least one of two tax breaks available under the Inflation Reduction Act: the residential clean energy credit and the energy efficient home improvement credit. The average household received $5,084 from the residential clean energy credit and $882 from the energy efficient home improvement credit.
Top States for Claims:
- California
- Florida
- New York
- Pennsylvania
- Texas
Key Details
The Inflation Reduction Act, signed by President Joe Biden in 2022, extended existing tax breaks and increased their value. The act aimed to reduce the cost of installing energy-efficient technologies, such as solar panels and heat pumps, and cut household greenhouse gas emissions.
Breakdown of Credits:
- Residential Clean Energy Credit: Covers up to 30% of the cost for installing rooftop solar panels, battery storage, wind turbines, and other clean energy technologies.
- Approximately 1.2 million households claimed this credit, totaling $6.3 billion.
- The majority of claims were for rooftop solar installations.
- Energy Efficient Home Improvement Credit: Covers up to 30% of the cost for home efficiency projects, with a cap of $1,200 per year. This includes energy-efficient windows, doors, insulation, and heat pumps.
- About 2.3 million taxpayers claimed this credit, totaling $2.1 billion.
- Popular projects included home insulation and energy-efficient windows and skylights.
Unexpected Popularity
The uptake of these tax breaks has been higher than initially expected. The Joint Committee on Taxation had projected the combined cost of these credits for fiscal year 2024 to be $2.4 billion, about 25% of the amount reported for 2023.
The number of taxpayers claiming these credits increased by roughly one-third compared to 2021, before the Inflation Reduction Act was in effect, and the aggregate value of the credits rose by almost two-thirds.
Future Outlook
Deputy Treasury Secretary Wally Adeyemo expects the popularity of these credits to continue growing. “In many ways, the impacts of the Inflation Reduction Act are just getting started,” he said.
How the Credits Work
- Residential Clean Energy Credit: Up to 30% off the cost of solar panels, battery storage, and wind turbines.
- Energy Efficient Home Improvement Credit: Up to 30% off the cost of home efficiency projects, with specific dollar caps for different improvements.