Author: Amy Thompson

Act Section 13301 (Act Page 346) (IRC Sec. 25C)

The nonbusiness energy credit had previously expired on 12/31/2021. The Act now makes the expiration date 12/31/2032 and changes the name to “Energy Efficient Home Improvement Credit”. The Act does away with the lifetime limit on a home for energy efficient improvements and replaces it with an annual $1,200 limit discussed below.

The credit rate increases to 30% from 10% with a new annual limit of $1,200 (previously $500 lifetime). The credit for efficient windows and skylights was increased to $600 from $200 and exterior doors goes to $250 each ($500 maximum) per year so staggering remodeling over several years will greatly increase the benefits.

The biggest change in home improvements is the credit for energy efficient (electric or natural gas) heat pumps, heat pump water heaters, central air conditioners, woodstoves (biomass) and natural gas or oil furnace or boilers, going from $150 to $2,000 annually, and the $1,200 limit is waived. Additionally, roofs and fans no longer qualify for the credit (Page 348)!

In IR-2022-225 the IRS clarified the following:

There is a $1,200 aggregate yearly tax credit maximum for all building envelope components, home energy audits, and energy property. Electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and biomass boilers have a separate aggregate yearly credit limit of $2,000. Thus, the maximum total yearly energy efficient home improvement credit amount may be up to $3,200

The following energy efficient home improvements are eligible for the Energy Efficient Home Improvement Credit:

Building envelope components satisfying the energy efficiency requirements:

exterior doors (30% of costs up to $250 per door, up to a total of $500);
exterior windows and skylights (30% of costs up to $600); and
insulation materials or systems and air sealing materials or systems (30% of costs).
Residential energy property (30% of costs, including labor, up to $600 for each item):
central air conditioners;
natural gas, propane, or oil water heaters;
natural gas, propane, or oil furnaces and hot water boilers; and
improvements to or replacements of panelboards, sub-panelboards, branch circuits, or feeders that are installed along with building envelope components or other energy property listed in the FAQs and enable its installation and use
Heat pumps and biomass stoves and biomass boilers (30% of costs, including labor) satisfying the energy efficiency requirements:
electric or natural gas heat pump water heaters;
electric or natural gas heat pumps; and
biomass stoves and biomass boilers
A home energy audit (Page 353-354 of Act) means an inspection and written report with respect to a dwelling unit located in the United States and owned or used by the taxpayer as the taxpayer’s principal residence which identifies the most significant and cost-effective energy efficiency improvements with respect to such dwelling unit, including an estimate of the energy and cost savings with respect to each such improvement, and is conducted and prepared by a home energy auditor that meets the certification requirements specified by the Secretary.

Basis is reduced by any credit claimed (IRC 25C(g)). The new credits apply to items placed in service after 12/31/2022 and before 1/1/2033.

The improvements qualify only for money originally spent by the taxpayer for homes in the US used as a residence (no requirement to be a primary residence!), and qualified costs include labor, site preparation and assembly.

The credits are nonrefundable and do not carry forward if unused.

Under the Energy Efficient Home Improvement Credit: a taxpayer can claim the credit only for qualifying expenditures incurred for an existing home or for an addition to or renovation of an existing home, and not for a newly constructed home.

When calculating the Energy Efficient Home Improvement Credit, a taxpayer may include the labor costs for the onsite preparation, assembly, or original installation of residential energy property such as central air conditioners; natural gas, propane, or oil water heaters; natural gas, propane, or oil furnaces or hot water boilers; electric or natural gas heat pumps; electric or natural gas heat pump water heaters; biomass stoves or biomass boilers; or improvements to panelboards, sub-panelboards, branch circuits, or feeders.

In contrast, a taxpayer may not include the labor costs for qualified energy efficient building envelope components including a qualifying insulation material or system, exterior window, skylight, or exterior door. Thus, for an energy efficient building envelope component for which a taxpayer pays a fixed price, the taxpayer must make a reasonable

allocation between the qualifying cost of the property and the nonqualifying labor cost of the installation.

Act Section 13302 (Act Page 359) (IRC Sec. 25D)

The residential energy efficient property credit has been extended through 12/31/2034 from 12/31/2023 and renamed “clean energy property credit.” It has also been retroactively increased for 2022 to 30% (Page 359, a3). Credit rates are now 26% for 2021; 30% for 2022 through the end of 2032; 26% for 2033 and 22% for 2034.

The following residential clean energy expenditures are eligible for a Residential Clean Energy Property Credit of 30%

of the cost:

solar electric property expenditures (solar panels);
solar water heating property expenditures (solar water heaters);
fuel cell property expenditures;
small wind energy property expenditures (wind turbines);
geothermal heat pump property expenditures; and
battery storage technology expenditures.

Before the passing of the Inflation Reduction Act, energy storage systems only qualified for the federal tax credit if they were paired with a solar energy system. Now, stand-alone energy storage systems can qualify for the tax credit. Batteries installed to store the electricity must be in the residence of the taxpayer and have at least 3 Kilowatt hours of storage after 12/31/2022 and qualify for the same credit.

This credit is also nonrefundable but carries forward. Biomass (woodstoves) do not qualify for this credit after 2021 because the IRA of 2022 replaced section (a)(6) which previously included biomass with the new battery rules. Expenses are considered to qualify when installation is completed or, in the case of a new home, when the taxpayer begins using the home. Additionally, basis is reduced by the credit amount.

Under the Residential Clean Energy Property Credit: a taxpayer can claim the credit for qualifying expenditures incurred for either an existing home or a newly constructed home.

When calculating the Residential Clean Energy Property Credit, a taxpayer may include the labor costs properly allocable to the onsite preparation, assembly, or original installation of the qualified property and for piping or wiring to interconnect the qualifying property to the home.

Other: Both Energy Efficiency and Clean Energy Credit:

For both credits, if a taxpayer uses property solely for business purposes, the property will not qualify for the credit.

A taxpayer who qualifies for the credits and whose use of the qualified property for business purposes is not more than 20 percent may claim the full credit. For a taxpayer who otherwise qualifies for the credits, but whose use of the qualified property for business purposes exceeds 20 percent, the taxpayer must calculate the amount of credit by including only that portion of the expenditures for the property that are properly allocable to use for nonbusiness purposes.

Used property does not qualify for either credit.

The Internal Revenue Service reminded families today that some taxpayers who claim at least one child as their dependent on their tax return may not realize they could be eligible to benefit from the Child Tax Credit (CTC).

Eligible taxpayers who received advance Child Tax Credit payments last year should file a 2021 tax return to receive the second half of the credit. Eligible taxpayers who did not receive advance Child Tax Credit payments last year can claim the full credit by filing a 2021 tax return.

The IRS urges grandparents, foster parents or people caring for siblings or other relatives to check their eligibility to receive the 2021 Child Tax Credit. It’s important for people who might qualify for this credit to review the eligibility rules to make sure they still qualify. Taxpayers can use the Interactive Tax Assistant to check eligibility. Taxpayers who haven’t qualified in the past should also check because they may now be able to claim the credit. To receive it, eligible individuals must file a 2021 federal tax return.

What is the Child Tax Credit expansion?

The Child Tax Credit expansion, which is a part of the American Rescue Plan, increased the amount of money per child families can receive and expanded who can receive the payments.

The American Rescue Plan increased the Child Tax Credit from $2,000 to $3,600 per child for children under the age of six, from $2,000 to $3,000 for children at least age 6 and raised the age limit from 16 to 17 years old.

The American Rescue Plan Act of 2021 expanded the Child Tax Credit for tax year 2021 only.

Who qualifies for the Child Tax Credit?

Taxpayers can claim the Child Tax Credit for each qualifying child who has a Social Security number that is valid for employment in the United States and issued by the Social Security Administration before the due date of their tax return (including an extension if the extension was requested by the due date).

To be a qualifying child for the 2021 tax year, the dependent generally must:

Be under age 18 at the end of the year.
Be their son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister or a descendant of one of these (for example, a grandchild, niece, or nephew).
Provide no more than half of their own financial support during the year.
Have lived with the taxpayer for more than half the year.
Be properly claimed as their dependent on their tax return.
Not file a joint return with their spouse for the tax year or file it only to claim a refund of withheld income tax or estimated tax paid.
Have been a U.S. citizen, U.S. national or U.S. resident alien.
What are the eligibility factors?
Individuals qualify for the full amount of the 2021 Child Tax Credit for each qualifying child if they meet all eligibility factors and their annual income is not more than:

$150,000 if they’re married and filing a joint return, or if they’re filing as a qualifying widow or widower.
$112,500 if they’re filing as a head of household.
$75,000 if they’re a single filer or are married and filing a separate return.
Parents and guardians with higher incomes may be eligible to claim a partial credit. Claiming these benefits can result in tax refunds for many individuals. Individuals should file electronically and choose direct deposit to avoid delays and receive their refund faster.

Finding free tax return preparation:
A limited number of Volunteer Income Tax Assistance and Tax Counseling for the Elderly (VITA/TCE) program sites remain open and available to help eligible taxpayers get their tax returns prepared and filed for free by IRS trained and certified volunteers. Low- and moderate-income taxpayers as well as those age 60 and above can check to see if there is an available site in or near their community by using the VITA/TCE Site Locator.

IRS Free File available until Nov. 17 to help more people receive credits:
The IRS Free File program, available only through IRS.gov and offered in partnership the tax software industry’s Free File Alliance, offers eligible taxpayers brand-name tax preparation software to use at no cost. The software does all the work of finding deductions, credits and exemptions for which the taxpayer qualifies. It’s free for most individual filers who earned $73,000 or less in 2021. Some of the Free File packages also offer free state tax returns to those who qualify. Taxpayers who earned more than $73,000 in 2021 and are comfortable preparing their own taxes can use Free File Fillable Forms. This electronic version of paper IRS tax forms is also used to file tax returns online.

To help more people claim a variety of tax credits and benefits, Free File will remain open for an extra month this year, until November 17, 2022.

The IRS is sending letters to more than 9 million individuals and families who appear to qualify for a variety of key tax benefits but did not claim them by filing a 2021 federal income tax return. Many in this group may be eligible to claim some or all of the 2021 Recovery Rebate Credit, the Child Tax Credit, the Earned Income Tax Credit and other tax credits depending on their personal and family situation. The special reminder letters, which will be arriving in mailboxes over the next few weeks, are being sent to people who appear to qualify for the Child Tax Credit, Recovery Rebate Credit (RRC) or Earned Income Tax Credit (EITC) but haven’t yet filed a 2021 return to claim them. The letter, printed in both English and Spanish, provides a brief overview of each of these three credits.

These and other tax benefits were expanded under last year’s American Rescue Plan Act and other recent legislation. Even so, the only way to get the valuable benefits is to file a 2021 tax return. Often, individuals and families can get these expanded tax benefits, even if they have little or no income from a job, business or other source. This means that many people who don’t normally need to file a tax return should do so this year, even if they haven’t been required to file in recent years.

People can file a tax return even if they haven’t yet received their letter. The IRS reminds people that there’s no penalty for a refund claimed on a tax return filed after the regular April 2022 tax deadline. The fastest and easiest way to get a refund is to file an accurate return electronically and choose direct deposit.

As the old saying goes: When something sounds too good to be true, it probably is. Taxpayers with outstanding tax bills might be tempted by businesses who advertise and offer to help them reduce their tax debt. These businesses, often called Offer in Compromise mills, make huge claims about reducing unpaid taxes for pennies on the dollar. Unfortunately, these companies sometimes don’t deliver and charge large fees.

An Offer in Compromise with the IRS can help some taxpayers who can’t pay their tax bill. An Offer in Compromise is an agreement between a taxpayer and the IRS that settles a tax debt for less than the full amount owed. The offer program gives eligible taxpayers a path toward paying off their debt when they otherwise couldn’t or would face financial hardship.

The OIC mills that are dishonest take advantage of taxpayers’ lack of knowledge to make a quick buck. These OIC mills urge people to hire their company to file an OIC application, even though the taxpayer won’t qualify. They often charge big fees to prepare applications that they know the IRS will deny. This unfair practice wastes taxpayers’ time and money. Taxpayers who do qualify for an OIC can get the same deal working directly with the IRS, without the extra fees. The OIC mills that are dishonest are a problem all year long, but they step up their advertising after the filing season ends, when taxpayers are trying to resolve their tax issues.

Here’s what taxpayers considering an OIC should know:
Individual taxpayers can use the IRS’s Offer in Compromise Pre-Qualifier tool to see if they’re eligible. When a taxpayer is ready to apply, they can watch an OIC video playlist that will lead them through the steps and forms to calculate an appropriate offer based on their assets, income, expenses and future earning potential.

For questions and concerns call (847)593-7558 or https://www.weissthompson.com/contact.htm

The Internal Revenue Service today announced an increase in the optional standard mileage rate for the final 6 months of 2022. Taxpayers may use the optional standard mileage rates to calculate the deductible costs of operating an automobile for business and certain other purposes.

For the final 6 months of 2022, the standard mileage rate for business travel will be 62.5 cents per mile, up 4 cents from the rate effective at the start of the year. The new rate for deductible medical or moving expenses (available for active-duty members of the military) will be 22 cents for the remainder of 2022, up 4 cents from the rate effective at the start of 2022. These new rates become effective July 1, 2022. The IRS provided legal guidance on the new rates in Announcement 2022-13PDF, issued today.

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2022. The IRS normally updates the mileage rates once a year in the fall for the next calendar year. For travel from Jan. 1 through June 30, 2022, taxpayers should use the rates set forth in Notice 2022-03PDF.

“The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices,”
said IRS Commissioner Chuck Rettig. “We are aware a number of unusual factors have come into play involving fuel costs, and we are taking this special step to help taxpayers, businesses and others who use this rate.”

While fuel costs are a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

The 14 cents per mile rate for charitable organizations remains unchanged as it is set by statute.

Midyear increases in the optional mileage rates are rare, the last time the IRS made such an increase was in 2011.

https://www.irs.gov/newsroom/irs-increases-mileage-rate-for-remainder-of-2022

The big advantage of 529 plans is that qualified withdrawals are always federal-income-taxfree and usually state-income-tax-free too. What you may not know is that not all 529 withdrawals are tax-free qualified withdrawals, even in years when you have heavy college costs. This article explains what we think are the six most important things to know about 529 withdrawals:

Point No. 1: You Usually Have Several Payment Options
Point No. 2: Watch Out for Withdrawals from 529 Accounts Funded with Custodial Account Money
Point No. 3: The IRS Knows about Withdrawals
Point No. 4: Withdrawals May Be Taxable Even in Years When Substantial College Costs Are Incurred
Point No. 5: When You Keep a Withdrawal, There Are Tax Consequences
Point No. 6: Withdrawals Not Used for Education Can Also Be Hit with a 10 Percent Penalty Tax

Read more at: https://www.bradfordtaxinstitute.com/Tools/College-Premium.pdf

The IRS has shared a fact sheet with tips for the Advance Child Tax Credit and filing the 2021 tax return. Heres what to keep in mind when you file:
Tax preparers and their clients should carefully read advance CTC letter 6419: To help eligible taxpayers, the IRS sent letters to payment recipients to help ensure tax returns are accurate.
Make sure you are filing an accurate return. People who file an accurate tax return electronically with direct deposit will generally see their refunds within 21 days after the filing is accepted by the IRS. Incorrect entries could lead to an extensive delay.
To ensure people accurately complete their 2021 tax return, use the advance Child Tax Credit information in your IRS Online Account beginning January 31. When in doubt about the amount, check IRS Online Account.
A limited group of taxpayers may receive an IRS letter with an incorrect amount of the payments received. Those in this small, affected group generally involve people who moved or changed bank accounts in December 2021, and their checks were returned as undeliverable, or their direct deposits were rejected. The IRS encourages anyone who thinks the letter might not be accurate to rely on the amount of payments reflected in their Online Account.

The Online Account link: https://www.irs.gov/payments/your-online-account