Over the last few years, there has been an increase in the popularity of hybrid, plug-in electric, and other energy efficient vehicles. This has been driven by a combination of new tax incentives and manufacturing changes to focus on electric vehicle (EV) production. The numbers reflect the shift with over 40 EV models currently available, supported by 1,775 charging stations available in Denver alone. Beyond this, manufacturers like GM and Ford have made significant investments in battery and vehicle production. In fact, it is estimated by 2033 EV sales will account for 40% of all domestic auto sales.

Concurrently, there has been a similar change in home energy.  Many states, including Colorado, now offer significant tax and other incentives for the purchase and installation of energy efficient systems including water heaters, air conditioners, and heat pumps. These changes spell opportunity families in the form of rebate programs, tax incentives, and even sales and use tax exemptions. To help clients, prospects, and others, Hanson & Co has provided a summary of the key details below.

Federal Tax Incentives

  • Residential Clean Energy Credit – This 30% federal tax credit is available for the cost of installing new, qualified clean energy property, in a home anytime from 2022 through 2023. A home is defined as the place where taxpayer lived and may include a house, houseboat, mobile home, condo, and certain manufactured homes. Clean energy property includes solar electric panels, solar water heaters, wind turbines, geothermal heat pumps, fuel cells, and battery storage technology. The credit is nonrefundable, can be carried forward, and has no annual or dollar limit.
  • Energy Efficient Home Improvement Credit – This credit is equal to 30% of the amount paid for certain energy efficient home improvements. Eligible expenses include those related to building components (exterior doors, windows, and insulation), home energy audits, residential energy property (central air conditioners, natural gas heaters, hot water boilers), and heat pumps and biomass stoves. The maximum amount of the credit is $3,200 per year composed of $1,200 for building envelope components and home energy audits with $2,000 for electric, biomass, or natural gas heat pumps.
  • Clean Vehicle Tax Credit – There is a $7,500 tax credit available for the purchase of a new qualified plug-in electric vehicle (EV) or fuel cell electric vehicle (FCEV). Only vehicles that have a battery capacity of at least 7 kilowatt hours, gross vehicle weight of less than 14,000 pounds, undergo final assembly in North America, and are made by a qualified manufacturer are eligible. In addition, the manufacturer suggested retail price cannot exceed $80,000 for vans and sport utility vehicles, and $55,000 for all other vehicles. The sale only qualifies if the vehicle is purchased new and the seller reports the required information to the IRS at time of purchase.
  • Used Clean Vehicle Credit – Starting in 2023, there is a 30% tax credit up to $4,000 for the purchase of a qualified used EV or FCEV from a licensed dealer. To qualify individuals must purchase the vehicle for use, not be the original owner, not be claimed as a dependent on another’s return, and not have claimed the credit in the prior 3 years. Only vehicles that have a sales price of $25,000 or less, model year 2 years earlier than the current year, have a gross vehicle weight of less than 14,000 pounds and have a battery capacity of at least 7 kilowatt hours.

Colorado Incentives

  • Energy Storage Incentives – Enacted with the passage of Colorado Senate Bill 22-051, there is now a 10% state tax credit available for the purchase and installation of a battery for energy storage in a home. Taxpayers can transfer the credit to the installer in exchange for repayment at time of purchase.
  • High Efficiency Home Improvement Credit – This provides an $8,000 upfront rebate for installing energy efficient heat pumps. Since the credit is income dependent not all taxpayers will receive the full amount. There is also a provision which provides up to $4,000 for electrical panel updates and an additional $2,500 for wiring improvement to support adding heat pumps.
  • Sales Tax Exemptions – Colorado also offers a sales and use tax exemption for the purchase of energy efficient systems including solar thermal electric, small wind biomass, and geothermal systems. Eligible components include wind turbine generators (rotors and blades, and solar modules (trackers, supporting structures, switchgears, and generator step-up transformers).
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