A couple looks at an electric vehicle at a dealership, they’re taking advantage of the Inflation Reduction Act.
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Tax goodies for 2024

Important Updates to the Inflation Reduction Act — What to Know for 2024

Kimberly Hutchings
December 19, 2023

In August 2021, the Inflation Reduction Act made history as the most notable piece of action ever taken by Congress in the fight against climate change.

The legislation features a wide range of incentives designed to make investing in clean energy more accessible (and affordable) for consumers nationwide.

For the most part, the Inflation Reduction Act offers incentives in two forms.

The first is a tax credit. Think of tax credits as a means of offsetting the amount you owe on your annual income taxes. They're only really beneficial if you owe money on your taxes at the end of the year and work by shaving money off of your final bill.

Then there are tax rebates. Think of a tax rebate as a direct refund on an investment you make, like an energy-efficient home upgrade or the purchase of an electric vehicle (EV). Unlike credits, which are issued at tax time, rebates can be issued at any point throughout the year, giving consumers retroactive money back on their purchases, regardless of taxes owed.

Earlier in 2023, we broke down each and every one of the opportunities available through the Inflation Reduction Act's incentive policies, but a few things are changing in the New Year.

Take note of the following if you want to make the most of your energy-saving investments in 2024!

Updates to the Inflation Reduction Act in 2024

Largely, the most significant change to Inflation Reduction Act incentives in 2024 is their availability.

While IRA tax credits have been available since January 1, 2023, the timeline for home electrification rebates has been up in the air while states awaited guidance from the U.S. Department of Energy on implementing these new policies.

There's good news, though! According to Rewiring America, rebates should start to become available at the end of 2023 (aka anytime now), and most others will roll out in 2024.

While the exact timing will vary from state to state, these incentives include up to $2,500 back on wiring upgrades, $4,000 back on electric panel improvements, up to $1,750 back on a heat pump water heater — and much, much more!

You can find more details about the rebate incentives available through the Inflation Reduction Act by checking out our complete guide here.

Electric & Plug-In Hybrid Electric Vehicles

Beyond an increased availability for rebate incentives, the other essential changes consumers will want to make note of as we move into 2024 surround the criteria required in claiming the IRA's new electric and plug-in hybrid electric vehicle credit.

Here's a quick breakdown of what's changing.

How To Save On A New Electric/Plug-In Hybrid Electric Vehicle

The Inflation Reduction Act's New Clean Vehicle Credit is an amendment to the previous Qualified Plug-In Electric Drive Motor Vehicle Credit, with changes made to add new requirements concerning vehicle assembly and manufacturing as well as the critical minerals needed to produce electric vehicle batteries. It applies to electric vehicles put in service (in other words, that hit the road for the first time) on or after April 18, 2023.

The requirements split the credit into two sections, each section is worth $3,750, for a total value of $7,500 if both halves are claimed.

The first half relates to battery storage.

Under the updated credit criteria, a certain percentage of an EV's battery must be manufactured and assembled in North America. The percentage is set to increase yearly beginning in 2024 before reaching a 100 percent standard in 2029.

So, what do you need to know right now?

Well, while the 2023 requirements were 50 percent North American manufactured and assembled, an eligible battery in 2024 will have to meet a threshold of 60 percent in order to qualify for the $3,750 credit.

A similar increase will come into effect for the second half of the credit, too.

Referred to as the 'critical minerals requirement,' the second portion of the New Clean Vehicle Credit relates to sourcing minerals required in producing an electric vehicle's battery.

Under this requirement, manufactured batteries must have a certain percentage of minerals sourced from within the U.S. or from within a country with which the U.S. has a free-trade agreement. In 2024, this percentage will rise from 40 to 50 percent.

Additionally, beginning in 2024, a strict ban will come into effect, preventing the acquirement of battery components from countries deemed as 'foreign entities of concern.' or FEOC.

While guidance on what exactly a 'foreign entity of concern' is has been long awaited, on December 4, the U.S. Department of Energy finally put forward a proposed interpretation of the term, defining an FEOC as "owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation."

In current terms, this means that for an EV to qualify for the second half of the New Clean Vehicle Credit in 2024, battery components cannot, in any part, be manufactured in North Korea, China, Russia, or Iran. In 2025, this is expected to extend to critical mineral sourcing and processing as well.

While this means that acquiring the complete New Clean Vehicle Credit will likely become more challenging for consumers over the next few years (as China currently produces 75 percent of cathode and lithium-ion battery cells globally), automotive manufacturers are taking steps to bring more production over domestically (learn about the new battery belt here), in turn helping to make acquiring batteries that meet these new requirements more accessible to all down the road.

So, what can you do in the meantime? Well, you might want to consider leasing an electric vehicle if it's within your budget! Congress has classified leased electric vehicles as "commercial" rather than personal vehicles, exempting them from the strict manufacturing and production criteria that purchased vehicles are subjected to. This exemption provides consumers with a more accessible way to access the full credit in the interim while eligible electric vehicles for purchase are more limited.

You can read more about the Inflation Reduction Act's New Clean Vehicle Credit by clicking here.

What to Expect in 2024

The great news is that we can except a number of programs to help us afford the clean energy transition to go live throughout the year. Many of them are funded federally, but will be administered by states and states are in process of working out what that will look like.

We can also except more and more rebates to be available at point of sale, making the up front expense of some of these upgrades considerably more accessible to many. One example is that we can expect EV credits to count at point of sale through some dealerships this year. We also expect that to happen with heat pumps, heat pump water heaters and more!

Next Steps and Resources

While a few things are changing for the Inflation Reduction Act's tax credit and rebate incentives in 2024, keeping up-to-date on shifting requirements can help you stay eligible and in the know on how best to maximize your energy-saving investments.

On our end, we'll be keeping you updated here on the OhmConnect blog every step of the way with the latest news and developments. Happy saving!

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