Article Highlights:
- Build Back Better Act Legislation
- Home Solar Energy Credit
- Storage Batteries
- Home Energy-Efficient Modifications
- Plug-in 4-Wheel Electric Drive Vehicles
- Previously Owned Electric Vehicles
- Bicycle Commuting
- Electric Bicycles
If you are considering buying an electric vehicle, adding solar to your home or making energy-saving improvements to your home, you may want to wait for the outcome of the $3.5 trillion Build Back Better Act (BBBA) legislation being hotly debated in Congress.
The legislation includes a variety of tax benefits for making energy-saving home improvements and purchases of environmentally-friendly vehicles, that if included in the final version of passed legislation, will substantially enhance existing tax benefits and add some new ones. Thus, it may be appropriate to delay any planned “green” expenditures pending the outcome of the final BBBA legislation. Here is an overview of some of the proposed provisions. Keep in mind there is no assurance any of these proposals will pass, and if they do, they may not be the same as described in this article. Any tax strategies suggested are predicated on the legislation passing as described.
- Home Solar Energy Credit – This credit, which is currently scheduled to expire after 2023, is currently phasing out from the original 30% of the cost and only provides a credit of 26% for 2021 and 2022. The proposed changes in the BBBA legislation would extend the credit through 2033, and would return the credit to 30% for 2022 through 2031. Thus, if contemplating a solar installation, by waiting until 2022 the credit would be 30% instead of 26% of the cost. Even if you are already in the process of installing solar, note that the credit applies to the year the installation is complete. So, if the installation completion can be delayed until 2022, it would qualify for the 30% rate rather than 26%. The adjacent chart illustrates the current law versus the proposed law.
SEC 25D (Solar) Credit Rate PhaseOut
| Applicable Year | Current Law | Proposed Law |
|---|---|---|
| 2020 | 30% | - |
| 2021 | 26% | - |
| 2022 | 26% | 30% |
| 2023 | 22% | 30% |
| 2024 | 0% | 30% |
| 2025-2031 | 0 | 30% |
| 2032 | 0 | 26% |
| 2033 | 0 | 22% |
- Battery Storage Technology Expenditure – Under existing law, storage batteries qualify for the solar credit if the battery is charged via solar and not from the grid. The proposed law would include as eligible property any battery storage technology installed on a dwelling in the U.S. used as a residence by the taxpayer and that has a capacity of no less than 3 kilowatt hours and does not include the requirement that it only be charged from the solar array.
- Home Energy-Efficient Modifications – Current law provides a 10% of cost credit for making certain energy-efficient home modifications but includes a lifetime credit limit of $500 going all the way back to 2006. That credit is scheduled to expire after 2021. The proposed legislation includes a new 30% of cost credit with an annual credit limit of $1,200. As with the prior credit there are credit limits for certain specific modifications. Thus, it might make sense to delay any planned modifications until 2022. However, if that provision is not included in the final legislation, no credit will be allowed in 2022 at all.
- Plug-in 4-Wheel Electric Drive Vehicles – Current law allows a non-refundable credit of up to $7,500 for the purchase or lease of an electric 4-wheel vehicle. However, the credit begins to phase out once a manufacturer sells 200,000 qualifying vehicles; thus, many of the more popular vehicles no longer qualify for the current credit. The proposed legislation introduces a new credit that is refundable, is no longer phased out by manufacturer sales and establishes a new method of calculating the credit that takes into consideration battery capacity, purchase price, and whether the vehicle is domestically assembled and satisfies domestic content qualifications. Thus, if you are considering purchasing a vehicle that no longer qualifies under the current credit, it may be beneficial to wait until 2022. But, under the proposed law changes, the credit will phase out by $200 for each $1,000 in excess of the high-income thresholds illustrated in the table.
| Filing Status | MAGI Threshold |
|---|---|
| Married Joint, Surviving Spouse | $800,000 |
| Head of Household | $600,000 |
| Single and MFS | $400,000 |
- Previously Owned Electric Vehicles - The proposed tax changes also include a credit for the purchase of previously owned electric cars equal to $1,200 plus a bonus for batteries with more than 4-kilowatt hour capacity, but the credit cannot exceed 30% of the vehicle’s cost. So, if you are considering purchasing a used electric vehicle, it may make sense to wait until 2022 to see if this credit is included in the final legislation. As with the new vehicle credit, this one is also limited by the taxpayer’s AGI, and the threshold is significantly less than that for new vehicles.
| Filing Status | MAGI Threshold |
|---|---|
| Married Joint, Surviving Spouse | $150,000 |
| Head of Household | $112,500 |
| Single and MFS | $75,000 |
- Bicycle Commuting – The proposed changes would restore the nontaxable employee fringe benefit for bicycle commuting to work, with the monthly benefit limited to 30% of the amount allowed for qualified parking.
- Electric Bicycle Credit - The proposal would also allow a credit of 15% of the cost (limited to $5,000) of an electric bicycle placed in service during the year, limited to one bicycle (2 if filing married joint). However, this credit would be subject to the same AGI threshold limits as the used electric vehicles. So, if you are contemplating the purchase of an electric bicycle, and assuming this credit is included in the final legislation, delaying the purchase until 2022 may be appropriate.
- Other Credits – The legislation also extends the credits for 2- and 3-wheel plug-in electric vehicles for highway uses, fuel cell vehicles, and refueling property (both personal and commercial).
The information provided here is all about PROPOSED legislation, and there is no assurance that any of the provisions discussed will actually become law, or even become law in the form described herein, as Congress continues to debate what will and will not be included in the BBBA legislation. If you have questions on whether you should delay actions related to these issues, please give this office a call.
