IRS: Builders of qualified new energy efficient homes might qualify for an expanded tax credit under Section 45L Tax Credit

IR-2023-142, Aug. 7, 2023

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WASHINGTON — The Internal Revenue Service reminds eligible contractors who build or substantially reconstruct qualified new energy efficient homes that they might qualify for a tax credit up to $5,000 per home with Section 45L Tax Credit.

The actual amount of the credit depends on eligibility requirements such as the type of home, the home’s energy efficiency and the date when someone buys or leases the home. This important credit was expanded as part of the Inflation Reduction Act of 2022.

Eligibility for builders and homes

To qualify, eligible contractors must construct or substantially reconstruct a qualified new energy efficient home. They also must own the home and have a basis in it during the construction, and they must sell or lease the home to a person for use as a residence.

The homes must also be specified categories of single-family (including manufactured) or multifamily homes under Energy Star programs, be located in the United States, and meet applicable energy saving requirements based on home type and acquisition date.

Requirements and credit amounts for 2023 and after

For homes acquired in 2023 through 2032, the credit amount ranges from $500 to $5,000, depending on the standards met, which include:

• Energy Star program requirements
• Zero energy ready home program requirements
• Prevailing wage requirements

Requirements and credit amounts before 2023

For homes acquired before 2023, the credit amount is $1,000 or $2,000, depending on the standards met, which include:

• Certifying that the home has an annual level of heating and cooling energy consumption that is at least 50% (or 30% for certain manufactured homes) less than that of a comparable home that meets certain energy standards, with building envelope component improvements accounting for at least 1/5 (or 1/3 for certain manufactured homes) of the reduction
• Meeting certain federal manufactured home rules
• Meeting certain Energy Star requirements

Properly claiming the credit

Eligible contractors must meet all requirements under Internal Revenue Code Section 45L prior to claiming the credit. Guidance interpreting Section 45L may be found in Notice 2008-35 (and Notice 2008-36, for manufactured homes).

Use Form 8908, Energy Efficient Home Credit, to claim the Section 45L credit. If the source to claim the credit is from a partnership or S corporation, eligible contractors should use Form 3800, General Business Credit.

The IRS encourages eligible contractors to practice good recordkeeping of all documents required to support a claim for the Section 45L credit.

Other resources

• Credit for Builders of Energy-Efficient Homes
• Instructions for Form 8908
• Credits and Deductions Under the Inflation Reduction Act of 2022

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WASHINGTON — The Department of the Treasury and the Internal Revenue Service today issued Notice 2023-44PDF to provide more details for applicants seeking section 48C tax credit 2023 allocations in the qualifying advanced energy project credit allocation program under the Inflation Reduction Act.

On Feb. 13, 2023, the Treasury Department and the IRS issued Notice 2023-18 to establish the section 48C(e) program to allocate $10 billion in credits  not less than $4 billion of which will be allocated to projects located in certain energy communities census tracts. The notice also provided initial program guidance and announced that the Treasury Department and the IRS would issue additional program guidance by May 31, 2023. The guidance is primarily of interest to owners of clean energy manufacturing and recycling projects, greenhouse gas emission reduction projects, and critical material projects.

Notice 2023-44 updates the earlier version of Appendix A, defining qualifying advance energy projects, with clearer definitions and examples, and updates the earlier version of Appendix B, providing the Department of Energy application process, by adding technical review criteria and application content requirements. This notice also provides the process for submitting concept papers and joint applications for DOE recommendations and for IRS § 48C(e) certifications and clarifies the selection criteria used to evaluate whether a project merits a DOE recommendation.

Additionally, Notice 2023-44 defines the term “facility” for purposes of sections 45X and 48C, provides the procedure for informing DOE and IRS of a significant change to the project plan, includes information regarding the disclosure of certain information, and clarifies that eligible property that is placed in service before being awarded an allocation of section § 48C credits is ineligible for the § 48C(e) program. Finally, the guidance provides information regarding section 48C(e) energy communities census tracts, including new Appendix CPDF, which contains a list of those census tracts.

More information about IRA guidance may be found on the Inflation Reduction Act of 2022 page on IRS.gov.

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How To Get A Tax Extension Easy! – IRS Newsfeed 2023

WASHINGTON — As the tax deadline draws near, the Internal Revenue Service reminds taxpayers who need more time to file that getting an extension is quick and easy. An extension gives taxpayers an automatic six more months – until Oct. 16 this year – to file their tax return.

One of the easiest ways to get an extension is by using the IRS Free File program.

While an extension allows for extra time to gather, prepare and file paperwork, it’s important to remember that an extension of time to file taxes is not an extension of time to pay.

Taxpayers who owe taxes should pay their entire obligation, or as much as they can, by the normal deadline to avoid penalties and interest. The deadline this year is April 18 because the regular date of April 15 falls on a weekend, followed by a holiday in the District of Columbia.

Use IRS Free File to get an extension online

A quick and easy way to get an extension is through IRS Free File on IRS.gov. All individual tax filers, regardless of income, can electronically request an extension on Form 4868PDF by using the IRS Free File program partner software on IRS.gov. To get the extension, taxpayers must estimate their tax liability on this form and file it by April 18.

Get an extension when making a payment

Other fast, free and easy ways to get an extension include using IRS Direct Pay, the Electronic Federal Tax Payment System or by paying with a credit or debit card or digital wallet. There’s no need to file a separate Form 4868 extension request when making an electronic payment and indicating it’s for an extension. The IRS will automatically count it as an extension.

Important reminders

The IRS reminds taxpayers that payments are still due by the original deadline even if they request an extension of time to file a tax return. Taxpayers should file even if they can’t pay the full amount.

By filing either a return on time or requesting an extension by the April 18 filing deadline, they’ll avoid the late-filing penalty, which can be 10 times as costly as the penalty for not paying.

Taxpayers who pay as much as they can by the due date, reduce the overall amount subject to penalty and interest charges. The interest rate for an individual’s unpaid taxes is currently 7%, compounded daily. The late-filing penalty is generally 5% per month and the late-payment penalty is normally 0.5% per month, both of which max out at 25%.

The IRS will work with taxpayers who cannot pay the full amount of tax they owe. Other options to pay, such as getting a loan or paying by credit card, may help resolve a tax debt. Most people can set up a payment plan on IRS.gov to pay off their balance over time.

Some taxpayers get automatic extensions

Certain eligible taxpayers get more time to file without having to ask for extensions:

• U.S. citizens and resident aliens who live and work outside of the United States and Puerto Rico get an automatic two-month extension to file their tax returns. They have until June 15 to file. However, tax payments are still due April 18 or interest will be charged.

• Members of the military on duty outside the United States and Puerto Rico also receive an automatic two-month extension to file. Those serving in combat zones have up to 180 days after they leave the combat zone to file returns and pay any taxes due. Details are available in Publication 3, Armed Forces’ Tax GuidePDF.

• When the U.S. president makes a disaster area declaration, the IRS can postpone certain taxpayer deadlines for residents and businesses in the affected area. Taxpayers in certain disaster areas do not need to submit an extension electronically or on paper. People can find information on the most recent tax relief for disaster situations on the Extension of Time To File Your Tax Return page.

Interested in saving some money this tax year? Here are 12 Tax Write Offs for 2022 :

As always, Contact ATS Advisors with any questions!

Taxpayers may be able to take advantage of numerous deductions and credits on their taxes each year that can help them pay a lower amount of taxes—or receive a refund from the IRS.

You may be able to write off the following twelve common write-offs, which include both tax credits and deductions. Additionally, you may be entitled to write-offs on your state taxes, so check your state tax department’s website to see if you qualify.

1. Property Taxes

Property taxes may be deductible if you itemize, but a limit comes into play.

Under a massive tax overhaul that was signed into law in 2017, deductible state and local income taxes (SALT), including property taxes, are capped at $10,000.

The limit is scheduled to last through the 2025 tax year, unless Congress extends it.

2. Mortgage Interest

The interest you pay for your mortgage can be deducted from your taxes. The write-off is limited to interest on up to $750,000 ($375,000 for married-filing-separately taxpayers) of mortgage debt incurred after Dec. 15, 2017.

3. State Taxes Paid

Again, you can deduct state income taxes that are paid, but the write-off is limited to up to $10,000, which includes all deductible state and local taxes.

4. Homeowner Deductions

You can deduct mortgage insurance premiums, mortgage interest and real estate taxes that you pay during the year for your home.

5. Charitable Contributions

Generally, you can deduct charitable contributions of cash totaling up to 60% of your adjusted gross income, or AGI. Donations of items or property also are considered deductible charitable contributions.

6. Medical Expenses

Medical and dental expenses qualify for a tax deduction, though you can deduct only the costs that exceed 7.5% of your AGI.

To claim medical-related expenses on your 2022 tax return next year, they must have been paid in 2022, unless they were charged to a credit card. In those cases, you can deduct the expenses in the year you charged the card, not necessarily the year in which you repaid them.

Trips to your doctor’s office or hospital appointments qualify for medical mileage. For 2022, you can deduct 18 cents a mile for travel you made for medical purposes through June 2022. The amount has increased to 22 cents a mile from July 1, 2022, through the end of the year.

7. Lifetime Learning Credit Education Credits

The lifetime learning credit allows people to claim a tax credit for taking classes at a community college, university or other higher education institution. The maximum amount of expenses you can deduct is up to $10,000 for an unlimited number of years. However, the top credit you can receive per tax return is worth $2,000.

The credit allows for a dollar-for-dollar reduction on the amount of taxes owed. The expenses can include tuition, fee payments and required books or supplies for post-secondary education for yourself, spouse or dependent child. The credit isn’t refundable, which means it can be used to pay any taxes you owe, but you can’t receive any of it as a refund.

The amount of your credit depends on your income. You should check IRS Publication 170 to determine the income qualifications.

Note: This credit can’t be claimed in the same year as the American opportunity tax credit using the same expenses.

8. American Opportunity Tax Education Credit

The American opportunity tax credit offers a tax break for the first four years of higher education. The maximum annual credit is $2,500 per eligible student. If the amount of taxes you owe is zero because of this credit, the IRS says 40% of any remaining amount of the credit (a maximum of $1,000) can be refunded to you.

The credit is worth 100% of the first $2,000 of qualified education expenses paid for each eligible student and 25% of the next $2,000 of qualified education expenses.

“If you, your spouse, or child are in school, make sure to look deeper into education credits,” says Daniel Fan, managing director and head of wealth planning at First Foundation Advisors, an Irvine, California-based financial institution. “For students who are in the first four years of college, this credit could provide greater tax savings than the lifetime learning credit.”

Qualifying expenses include tuition, fee payments and required books or supplies for post-secondary education for yourself, spouse or dependent child.

The amount of your credit is determined by your income. This credit can’t be claimed the same year the lifetime learning credit is claimed.

9. Retirement Credits

The contributions you make to a retirement plan such as a 401(k) or a traditional or Roth IRA give you a tax credit of 50%, 20% or 10%, depending on your adjusted gross income that you report on Form 1040. Any rollover contributions do not qualify for the credit.

The maximum contribution amount that qualifies for the credit is $2,000 ($4,000 if married filing jointly), making the maximum possible credit $1,000 ($2,000 if married filing jointly). The IRS has a chart to help calculate your credit.

10. IRA Contributions

The maximum contribution for 2022 in a traditional or Roth IRA is $6,000, plus another $1,000 for people who are 50 years old or more. Your contributions to a traditional IRA are tax-deductible.

11. Self-Employed Health Care Premiums

If you’re self-employed, you can deduct 100% of the health insurance premiums you pay monthly for yourself, your spouse and your dependents, whether or not you itemize deductions, says Robert Charron, a CPA in charge of the tax department at Friedman, a New York-based accounting firm.

If you have kids under 27 at the end of 2022, you can also deduct their premiums—even if they aren’t dependents.

However, you can’t claim this deduction if you’re eligible to participate in a subsidized health plan from an employer for either yourself, your spouse, dependents or kids under 27.

12. Student Loan Interest

Student loan interest can be written off your taxes, but the maximum interest you can deduct is $2,500. The amount you may write off depends on your income. Review the previously mentioned IRS Publication 970 for more information.

So thats it! There are 12 Tax Write Offs for 2022 that you can use to your advantage.

What Is the Standard Deduction?

The standard deduction is an automatic deduction from your taxable income that you can receive without any itemizing.

Before deciding to claim the standard deduction, it’s a good idea to compare your standard deduction amount with your total itemized deductions.

For the 2022 tax year (meaning the taxes you’ll file in 2023), the standard deduction amounts are: :

• $12,950 for single and married filing separate taxpayers
• $19,400 for head of household taxpayers
• $25,900 for married taxpayers filing jointly or qualifying widow(er)s

Tips for Writing Off Your Expenses and Charitable Contributions

Keeping a good record of your income and deductible expenses in a spreadsheet throughout the year can make filing taxes a lot quicker and easier.

“Preparing and organizing everything for your taxes can seem like a daunting task, but a lot of people come across the same common mistakes,” Fan says. “Don’t forget to always include all sources of income, make sure you are looking for and including all possible deductions, and understand the difference between a deduction and a credit.”

Some common mistakes people make include:

• Not listing all income
• Not accounting for all possible deductions
• Not taking advantage of contributions to retirement accounts to increase tax-deductible contributions.

If you are filing taxes with several deductions, start by gathering all the appropriate paperwork, such as Form 1098 for mortgage interest rate deductions. For other deductions, which are based on expenses or contributions, keep accurate records.

“If you itemize your deductions, then keep track of qualified medical expenses, charitable contributions made, or any other deductions which can be itemized,” says Fan. “If you are likely to take the standard deduction, then record keeping will not be as important.”

“12 Common Tax Write-Offs You Can Claim On Your Next Return” Sourced From FORBES, Ellen Chang

Tax Bracket 2022 Head of Household – Need Michigan Tax Help? Contact ATS Advisors today!

2022 Tax Rates and Brackets

When you’re working on your 2022 federal income tax return next year, here are the tax brackets and rates you’ll need based on your filing status:

KEY POINTS

Michigan Tax Brackets 2023 –

The IRS announced its annual adjustments to the standard deduction and tax brackets for the 2023 tax year. They are a considerable increase over 2022. This is a response to ongoing inflation, which has the effect of eroding spending power even as it increases some workers’ take home pay.

As with all things taxes, this can raise some questions. Below, we’ll provide answers.

For more info on how these changes will affect your personal tax bill, consider reaching out to ATS Advisors Today!

What Is The New Standard Deduction For 2023?

The new standard deductions for personal income taxes apply as follows:

• Individuals: $13,850 in 2023, a $900 increase
• Head of Household: $20,800, a $1,400 increase
• Married Filing Jointly: $27,700, an $1,800 increase

What Are The New Tax Brackets For 2023?

The new tax brackets for personal income taxes apply as follows:

• 10%: All income below $11,000 Individual / $22,000 Married
• 12%: $11,000 Individual / $22,000 Married, an increase of $725/$1,450
• 22%: $44,725 Individual / $89,450 Married, an increase of $2,950/$5,900
• 24%: $95,375 Individual / $190,750 Married, an increase of $6,300/$12,600
• 32%: $182,100 Individual / $364,200 Married, an increase of $12,050/$24,100
• 35%: $231,250 Individual / $462,500 Married, an increase of $15,300/$30,600
• 37%: All income above $578,125 Individual / $693,750 Married, an increase of $38,225/$45,900

Capital gains taxes have also been adjusted. The 2023 capital gains brackets are:

• 0%: All earnings below $44,625 Individual/$89,250 Married
• 15%: $44,625 Individual/$89,250 Married, an increase of $2,950/$5,900
• 20%: $492,300 Individual/$553,850 Married, an increase of $32,550/$36,650

Does The IRS Ordinarily Do This?

Yes.

The IRS automatically adjusts income tax brackets and the standard deduction every year in response to annual inflation. If it didn’t, Americans would pay 30% on every dollar over $6,000. Adjusted for inflation, this would come to a 30% tax bracket on all income over $75,800, indicating how little Americans pay in taxes compared with past decades.

What is noteworthy in 2023 is the scale of these adjustments. Since the 1980’s, U.S. inflation has stayed around the Federal Reserve’s target 2% rate, fluctuating between 0% and 4% most years. This has led to relatively minor annual tax adjustments.

The high inflation of 2022 caused outsized results in this otherwise routine practice, with most adjustments between 6.5% and 8%. For example, between 2021 and 2022 the IRS adjusted the 12% individual bracket by $325, an increase of roughly 3.2%. For tax year 2023 the IRS adjusted that same 12% bracket by $725, an increase of 6.5%.

What Is The Impact of the New Brackets?

Any upward adjustment to the standard deduction or tax brackets is an effective income tax cut. It means that taxes apply to less of your income and that you pay less on the income that is taxed.

The question is whether any given taxpayer ends up with more spending power. The IRS doesn’t adjust its rates to give people tax relief, but rather to reflect the new value of money based on inflation/deflation cycles. If prices have gone up by 10%, but you keep 7% more from your taxes, then as a consumer you’re still effectively a little bit less wealthy than when you started.

What makes this more confusing is the degree to which sector-specific and region-specific inflation have muddled the economic picture as, contrary to general reporting, prices have stabilized in many areas but are skyrocketing in a few others. The result is that some taxpayers will, in fact, end up wealthier from these rate changes based on their spending patterns.

For example, if you already own your own home you’re largely insulated from the housing costs that are driving a lot of current inflation. With gas prices back to normal, and inflation currently flat for food and consumer goods, you may end up wealthier from these bracket changes. By contrast, median rents have increased between 12.5% and 16% since 2021. If you rent an apartment, particularly in a city, these tax changes won’t even cover half of your cost of living increase.

Who Does This Tax Change Apply To?

This applies to all U.S. income tax payers. If you file and pay income taxes to the IRS in 2023, you will do so using the new brackets.

What Income Does This Affect?

The new tax brackets will apply to all earnings starting on January 1, 2023. It does not apply retroactively, meaning that you can’t apply the new standard deduction or tax rates to income on or before December 31, 2022.

Can I Apply This to Current Earnings?

As above, you cannot apply the new tax brackets to any income that you earn on or before December 31, 2022. In IRS-speak, this means that if you trigger a tax event in 2022 the current tax brackets apply, not the new ones.

But you might apply the new tax brackets if you can defer earnings until 2023. The key is in that term “tax event.” This is a technical term for the IRS which means any event that causes you to owe taxes on income, earnings or other wealth. It means different things under different circumstances, but for individuals a tax event usually occurs when you take possession of new wealth. For example, when you receive your paycheck this is considered a tax event. The same goes for when you collect the earnings on a stock sale or when you receive payment after billing a client.

• Business Earnings – It’s important to note that businesses can us two different methods of bookkeeping. One considers it a tax event when you are owed money. The other considers it a tax event when you collect that money. Make sure you understand which method you use and apply it consistently.

The common theme is that, in most cases, you trigger a tax event when the new wealth is received, not when it’s owed. In other words, you pay 2022 tax rates on all money that you collected in 2022. You will pay 2023 tax rates on all money that you collect in 2023.

So, if you can defer income or earnings until 2023 you might be able to take advantage of the new rates. For example, some employers will allow you to defer your paycheck. Employees who do this can push their earnings to the new tax year. Self-employed individuals may be able to hold off on invoicing clients until January 1, 2023, collecting under the new brackets rather than the old. Selling investments assets is a little more complicated, since price changes may obviate any tax gains, but the same rules would apply to selling in 2022 vs. 2023.

It’s important to note that all of this is theoretical and absolutely should not be taken as individual tax planning advice. The rules for your personal situation may vary, as tax laws are highly situation-specific and can depend on your employer’s method of bookkeeping.

Do I Have To Do Anything?

No. While outsized, this is a standard change. It does not affect your rights or responsibilities differently than any other tax year. You will pay your taxes as normal, simply applying the new numbers as appropriate.

Bottom Line

The IRS has announced its new tax brackets for 2023, and they’re a considerable change over previous years.

SmartAsset – Eric Reed