The Inflation Reduction Act

On August 16, 2022, President Joseph R. Biden signed the landmark Inflation Reduction Act (IRA) into law. The law includes $391 billion to support clean energy and address climate change. Information and resources on energy-related incentives and programs to be funded by the IRA are included below. 

Tax Credits*

Clean Vehicle Tax Credits

The IRA amended the Qualified Plug-in Electric Drive Motor Vehicle Credit (IRC 30D), now known as the Clean Vehicle Credit, and added a new requirement for final assembly in North America that took effect on August 17, 2022, with additional requirements taking place as of January 1, 2023. More details are provided in the Alternative Fuels Data Center and on the list of EVs with Final Assembly in North America.

Commercial Clean Vehicle Tax Credit

Beginning January 1, 2023, a Commercial Clean Vehicle Credit is available to businesses for the purchase of new electric vehicles (EV) and fuel cell electric vehicles (FCEV). Vehicles with a gross vehicle weight rating (GVWR) below 14,000 pounds (lbs.) must have a battery capacity of at least seven kilowatt-hours (kWh), and vehicles with a GVWR above 14,000 lbs. must have a battery capacity of at least 15 kWh. The tax credit amount is equal to the lesser of the following amounts:

• 15% of the vehicle purchase price for plug-in hybrid electric vehicles
• 30% of the vehicle purchase price for EVs and FCEVs
• The incremental cost of the vehicle compared to an equivalent internal combustion engine vehicle

Maximum tax credits may not exceed $7,500 for vehicles under 14,000 lbs. and $40,000 for vehicles above 14,000 lbs. Businesses may not combine this tax credit with the Clean Vehicle Tax Credit.

Energy Efficient Home Improvement Credit

The Energy Efficiency Home Improvement Credit can be claimed for improvements made to a main home, where the person lives most of the time, between 2023 and 2032. The credit equals 30% of qualified expenses, including home energy audits, residential energy property expenses, and qualified energy efficiency improvements. There are limits on the allowable annual credit and on the amount of credit for certain types of qualified expenses. View the Fact Sheet released by the IRS for additional information.

Residential Clean Energy Credit

The Residential Clean Energy Credit can be claimed for improvements to a main home, where the person lives most of the time, whether they rent or own the home. The credit equals 30% of the costs of new, qualified clean energy property for a residence installed anytime between 2022 and 2033. Qualified expenses include solar electric panels, solar water heaters, wind turbines, geothermal heat pumps, fuel cells, and battery storage technology. View the Fact Sheet released by the IRS for additional information.

Rooftop Solar Tax Credits

Under the IRA, households can receive a tax credit to cover 30% of the costs of installing rooftop solar. This credit also applies to solar systems that are paired with battery storage. Starting on January 1, 2023, this credit will also apply to standalone battery storage installed without solar. More information can be found on U.S. DOE’s Home Upgrades webpage.

*Tennessee Department of Environment and Conservation’s Office of Energy Programs is not providing tax advice. The content on this webpage has been prepared for informational purposes only. It is recommended that you consult a tax professional should you have questions regarding the federal tax credits.

Clean Heavy-Duty Vehicle Program

The IRA will invest $1 billion to replace dirty heavy-duty vehicles with clean, zero-emission vehicles, support zero-emission vehicle infrastructure, and to train and develop workers. The U.S. Environmental Protection Agency (EPA) will be distributing this $1 billion in funding for clean heavy-duty vehicles between now and 2031. More information can be found on the EPA website here.