Tax Updates and Advice

Tax Updates and Advice

The summer is a good time to start thinking about possible tax saving strategies for the year. Please find below a list of some tax items we wanted to share with you.

• Changes to Residential Clean Energy Property Credit & Energy-Efficient Home Improvement Credit:

Residential Clean Energy Property Credit

• Residential credits can apply to primary residence or vacation home (except for the Residential Fuel Cells credit which only applies to the primary residence)

• Credit equals 30% of the cost of materials and installation.

• This credit is not refundable. Therefore, a taxpayer will only get the credit up to the amount of their tax liability. Therefore, some taxpayers with low-income levels won’t get any or all of the credit.

• Rate changes 26% in 2033, 24% in 2034

Energy-Efficient Home Improvement Credit

• 30% credit up to a yearly limit of $1,200. However, some items have a limit of $150, $250, $500, and $600. Some items have a yearly credit of $2,000.

• $150 for a home-energy audit

• $500 for exterior doors (no more than $250 per door)

• $600 for windows; skylights; natural gas, propane, or oil water heaters; electric panels; central air conditioners; or natural gas, propane or oil furnaces or hot water boilers.

• Credit is for tax years 2023 through 2032

• Qualified Charitable Donations: Due to the higher standard deduction that went into effect back with the 2018 Tax Cuts & Jobs Act, most taxpayers no longer itemize their deductions. This means most taxpayers do not receive a tax benefit from charitable donations. Although it is still wonderful to donate to charitable causes, most people enjoy receiving a tax break for the donation. For taxpayers who take an annual distribution from their IRA accounts, you can make a donation directly from the IRA account. This will give you a direct tax benefit by lowering the taxable income of the distribution. However, please be sure to let us know if you make a donation out of your IRA so that we can make the appropriate deduction on the tax return. If you do not take IRA distributions, another option may be to wait and make a large donation amount in one year to bring you over the standard deduction amount. However, please talk to your tax preparer first as this amount may need to exceed $10k or more to get a benefit. For additional information, visit https://www.irs.gov/newsroom/reminder-to-ira-owners-age-70-and-a-half-or-over-qualified-charitable-distributions-are-great-options-for-making-tax-free-gifts-to-charity

• Required Minimum Distributions (RMDs): You might recall that SECURE 1.0 Act made several changes to RMDs, including increasing the “required beginning date” for anyone born on or after July 1, 1949, from age 70 ½ to 72. SECURE 2.0 Act of 2022 has further increased the age, based on the individual’s date of birth as follows:

• On or Before June 30, 1949: 70 ½

• July 1, 1949 – December 31, 1950: 72

• January 1, 1951 – December 31, 1958: 73

• After December 31, 1959: 75

Note that a technical correction is required to clarify that the applicable age for individuals born in 1959 is 75. Presumably the technical correction will be made prior to 2032.

• Electric Vehicle Credits: The Inflation Reduction Act of 2022 changed the rules for this credit for vehicles purchased from 2023 to 2032.

• $7,500 credit available if new EV qualifies with both strict critical minerals and battery component rules if put in use on or after 4/18/23.

• $3,750 credit available if new EV qualifies for only one of the above rules if put in use on or after 4/18/23.

• New EVs placed in service 1/1 – 4/17/23 also have $7,500 credit available but must have a battery capacity of at least 7 kilowatt hours, have a gross vehicle weight rating of less than 14,000 pounds, be made by a qualified manufacturer, undergo final assembly in North America, the seller reports the sale to the IRS, and the MSRP cannot exceed $80,000 for vans, SUVs and pickup trucks, or $55,000 for other vehicles.

• Final assembly of the EV must occur in North America.

• Some high-cost EVs don’t qualify.

• 11 EVs and plug-in hybrids bought after 4/17 get the full $7,500 credit.

• US Department of Energy provides additional information https://fueleconomy.gov/feg/tax2023.shtml

• The credit is available to individuals and their businesses if they buy it for their own use, not for resale, and use it primarily in the U.S.

• There is an income limit for qualifying for the EV credit.

• Have children? We find it is always good to remind clients who have children that the Child Tax Credit changes when a qualifying child turns 17. This changes from a $2,000 Child Tax Credit to a $500 Other Dependent Credit.

• A child can still be a dependent, and qualify for the Other Dependent Credit, until age 24 if they are a full-time student, or if they are over age 18 (through any age) as long as they live with the taxpayer all year, the taxpayer pays more than half of their support, and the child does not earn more than $4,400.

• Credits start to phase out when taxpayer’s income exceeds $200k or $400k if MFJ.

• Do you have a relative or someone else living with you? The good news is that you may be able to claim this person as a dependent and receive the Other Dependent Credit of $500. In order to do so, this person must live with you for all 12 months, you must pay more than half of their support, they must be a US Citizen, and they cannot earn more than $4,400.

• Some tax advice for taxpayers with children starting college:

• If you qualify for an education credit, make sure you do not use 529 funds to pay for 100% of college expenses. In order to qualify for an education credit, you need to pay $4,000 of tuition out of non-529 funds. Here is a chart listing some details of both the American Opportunity Credit (AOTC) and the Lifetime Learning Credit (LLC) https://www.eitc.irs.gov/other-refundable-credits-toolkit/compare-education-credits/compare-education-credits

• NY gives a credit for undergraduate tuition -- the maximum credit is $400 on tuition up to $10,000. This credit is not limited to the first four years of college. Therefore, if the tuition costs more than $10k per year, you can benefit by receiving a credit for more years if you spread the tuition payments out over more years. For example, if you can pay the final year’s tuition in January instead of December, you may benefit from this credit for an additional year.

• Did you know that renting your personal residence for 14 days or less in a year is nontaxable and the rental income received does not need to be reported on your tax return? If you are going to be away from your home this summer, this may be a great way to make some extra money tax free while you are gone.