Last Chance for Heat Pump and EV Tax Credits Ending Soon

Tax breaks that have saved U.S. households thousands on home energy improvements, clean energy systems and electric vehicles are ending this year. That means people aiming to use them before they vanish need to move fast. “There is still time, but the clock is ticking,” said Zach Pierce, head of policy at Rewiring America, a nonprofit centered on electrification.

With thousands of dollars at stake and only days or months to claim them, we have some pointers on how to maximize your savings.

Refresh my memory. What are these incentives?

The Inflation Reduction Act enacted in 2022 contains a range of tax credits for electric vehicles and household efficiency upgrades. The credits had two primary aims: to make cleaner options like heat pumps and electric vehicles more affordable for consumers, and to cut greenhouse gas emissions, the main driver of climate change.

Besides EVs, qualifying home improvements include home energy audits, heat pumps, solar panels, water heaters, appliances, battery storage, car chargers and upgrades to windows, doors, skylights, insulation and electrical panels.

The payoff comes when you file taxes. For instance, if you buy a heat pump and qualify for a $2,000 tax credit, you report that expense on your return, and you owe $2,000 less in taxes that year.

Some incentives have limits. You can only claim $1,200 per year for many home upgrades like insulation and energy-efficient windows, and $2,000 for heat pumps and water heaters. The large-ticket items, including geothermal heat pumps, rooftop solar and battery storage, aren’t capped. Those tax credits amount to 30% of the purchase price. So a $20,000 rooftop solar installation earns a $6,000 tax credit.

Most of these credits were originally scheduled to expire between 2032 and 2034. But the budget Congress approved this year cuts them off much sooner.

When are they expiring?

Most expire at the end of this year. There are a few exceptions. The clean vehicle tax credit worth $7,500 for new EVs and up to $4,000 for used ones ends Sept. 30. Pierce said with such a tight deadline, anyone shopping for a qualifying new vehicle should move on that “as soon as you hear this message.”

Olivia Alves, senior associate with the nonprofit clean energy advocacy group RMI, said it’s also the one IRA credit you can often get immediately. “You use the clean vehicle tax credit, you can work with your dealership to get that money off the day that you make the purchase. So it operates like a point of sale rebate,” she said.

The car doesn’t need to be sitting in your driveway by the cutoff. A buyer simply must sign a contract and make a down payment or trade-in to be eligible.

The credit for EV chargers, up to $1,000 for qualifying residents, is available through June 30 of next year. Everything else expires on Dec. 31.

If I’m focused on my home, what should I prioritize?

Start with a home energy assessment, Alves recommended. “That is really the bread and butter for a lot of these types of retrofits,” she said. “Those are done by professionals that can help you map out what those projects would look like.”

Pierce said after that, if solar panels are part of the plan, address that next. But some solar installers are already booked through year’s end. “We are seeing more bottlenecks for rooftop solar installations than we are for heat pumps, for example, but that doesn’t mean that it may not be an option for your region or your neighborhood,” Pierce said.

“Experts estimate that takes 16 to 90 days to get a solar panels system installed, and that’s quick,” said Kate Ashford, investing specialist with the personal finance company NerdWallet. “You might be a little late, but you could look into it to see if it’s even possible.”

Alves suggested then handling smaller projects like doors and insulation. Her last tier includes major appliances like heat pumps, which are pricier and can take longer, but may not encounter the same backlog as solar work.

But what if the tax credits exceed what I owe?

Suppose you qualified for tax credits on a home efficiency upgrade and the amount exceeded your tax liability. You weren’t permitted to carry that unused credit into a later year anyway.

But credits for residential clean energy projects — think very large purchases like solar, geothermal heat pumps and battery storage — could be carried forward if you didn’t receive the full benefit of the incentive on your return. Rewiring America said it’s unclear whether that option will remain given the accelerated expiration dates, and advised consumers to consult their tax adviser.