The Inflation Reduction Act: What Real Estate Professionals Need to Know

By Ann Heinz, JD, CDEI
Jan 10, 2023

It's no secret that the real estate industry is dynamic, and real estate professionals must constantly stay on top of the latest changes to best serve their clients. With the recent passing of the Inflation Reduction Act in August of 2022, even more changes are coming to the world of real estate—especially as it relates to credits for energy efficient home improvements, electric vehicle purchase incentives, and rebates.

The Inflation Reduction Act: What Real Estate Professionals Need to Know

Which Energy Efficient Home Improvements May Qualify?

There are many energy efficient home improvements that may qualify for a tax credit under the Inflation Reduction Act, including:

  • new window and/or door installation
  • new insulation
  • new roofing installation
  • energy efficient water heater installation
  • energy efficient HVAC installation
  • air-circulating fan installation

The Inflation Reduction Act has also expanded qualifying home improvements to include things like electric panels, boilers, and some biomass stoves.

With the rise of electric vehicle purchases across the country, more homeowners are taking measures to install alternative refueling stations on their properties so that they can conveniently charge their own electric vehicles. As part of the Inflation Reduction Act, homeowners who purchase new electric vehicles and/or bidirectional charging equipment may also qualify for a tax credit beginning in 2023.

What is a "Qualified Energy Property"?

According to the Internal Revenue Service (IRS) form 5695, a qualified energy property refers to one that meets any of the following criteria:

  • Uses "certain electric heat pump water heaters, HVAC systems, natural gas, propane, or oil water heaters."
  • Uses "qualified natural gas, oil, or propane furnaces and qualified natural gas, oil, or propane hot water boilers." 
  • Uses "certain advanced air circulating fans in natural gas, oil, or propane furnaces."

Homes that meet the criteria to be considered qualified energy properties are eligible for special tax credits under the Inflation Reduction Act.

What Are the Home Improvement Tax Credit Limitations?

As a real estate professional, you know that energy efficient tax credits are nothing new. Previous credits allowed taxpayers to claim certain costs associated with making energy efficient improvements to a real estate property, such as installing new windows, insulation, roofing, and HVAC systems.

With the Inflation Reduction Act, however, expired credits have been revived and homeowners/investors can now claim up to 30% of the costs of all energy efficient home improvements made throughout the year. Likewise, the existing $500 lifetime limit on the credit has been replaced by a $1,200 limit that renews annually, so homeowners can get more money back for these types of improvements once tax time rolls around.

The Bottom Line For Real Estate Professionals

It's not uncommon for homeowners and potential home buyers to turn to real estate professionals for guidance on home improvements and similar investments. With this in mind, real estate professionals should become familiar with the nuances of the Inflation Reduction Act so they can provide clients with the best advice possible—especially as tax season approaches and many clients will be taking advantage of these credits for the first time.

WebCE is committed to staying on top of changes affecting the industry to ensure that you have the information you need to better understand your business and assist your clients.