The Inflation Reduction Act of 2022 – Long-term Tax Savings and Value-added “Green” Benefits for Homeowners

 

The Inflation Reduction Act was passed by both houses of Congress and signed into law in August 2022. Below is a summary of the updates and accretive investment impacts of The Inflation Reduction Act (“The IRA”) for US homeowners in tax years 2022 and 2023 through 2032.

The IRA provides material tax benefits and tax planning opportunities for individual households over the next 10 years by creating an investment framework to guide households’ decisions about when to undertake valuable, energy-efficient improvements to their homes. This has created an opportunity to optimize annual tax savings, reduce long-term energy bills, and also create a “cleaner” and “greener” home. Altogether, these stepwise, “green” investments can be expected to accentuate a home’s long-term asset value by reducing total costs of ownership (i.e., substantially lowering energy bills) while at the same time contributing to growing the “green footprint” of a single home or even of a community.

aerial view of modern housesTiming of Tax Credits

First, irrespective of any new impacts from The IRA, it is important to note that any energy-efficient improvements made to your home in any one year must be claimed on your individual tax return in the same year when improvements are made. There is, unfortunately, no “carry-over” of energy efficiency tax credits or rebates permitted from one year to the next.

For example, a homeowner would not be able to install a heat pump, solar panels, or an induction stove in 2022 and claim the tax credit in any other tax year except for the year when they were installed. However, a homeowner could install a heat pump in 2023, a heat pump hot water heater in 2024, an induction stove in 2025 and solar panels in 2026 and claim the tax credits and rebates available from each of these investments in each of those tax years, subject to higher annual investment limitation thresholds as outlined below.

Additionally, the Energy Credits outlined in The IRA Provisions A and B below must be claimed on the household’s federal tax return itself at the time of filing as dollar-for-dollar “tax credits” against a tax liability due in that year to reduce that tax liability. (There is no “refund” of the energy tax credit if the household has no federal tax liability against which to claim the credit.)

New Provisions

Second, The IRA will generally provide for greater tax credit benefits for homeowners in 2023 through 2032, than in 2022. However, The IRA has fortunately also extended energy-efficient tax credits set to expire in 2021 out to include 2022. So, energy-efficient tax credits expected to sunset in 2021 will still remain available in 2022.

The IRA Energy Efficient Home Improvement Umbrella essentially includes three provisions. A short summary of each is outlined below.

  1. The Energy Efficient Home Improvement Credit (effective January 1, 2023)
    • This extends (and officially renames) the former Nonbusiness Energy Property credit.
    • In 2022, this tax credit is worth 10% of the cost of installing energy-saving improvements, with a lifetime limitation of $500.
    • However, in 2023, a $1,200 annual tax credit limit replaces the $500 lifetime tax credit. The 2023 tax credit will be equal to 30% of the costs of all eligible home improvements made in each year and also includes coverage of electric panels, home energy audits, and other items such as appliances.
    • Beginning in 2023, The IRA includes annual tax credit limits of up to $2,000 for heat pump and heat pump hot water heaters for homeowners who would otherwise not qualify because of higher household income. (See Section C below) As such, the $2,000 heat pump tax credit is an exception to the $1,200 annual limit.
  2. The Residential Clean Energy Credit
    • This tax credit was slated to end in 2021 but was revived in 2022 due to The IRA and extended to 2032. Similar to the Energy Efficient Home Improvement tax credit, this credit is claimed on the tax return itself.
    • The tax credit amount for installing “green” household energy based on solar, wind, or geothermal sources has been raised from 26% in 2022 to 30% annually from 2023 to 2032, including equipment and installation costs.
    • The installed equipment must be Energy Star certified.
  3. The High-Efficiency Electric Home Rebate Program
    • This Program will include an upfront rebate of $8,000 to install heat pumps that can both heat and cool homes and a rebate of up to $1,750 for heat pump water heaters.
    • While homeowners will be able to collect a maximum of $14,000 in total rebates, household income cannot exceed 150% of the area median income (equivalent to $225,000 in high-income areas like Marin County and San Francisco in 2022) to qualify for this Rebate Program.
    • Homeowners living on lower fixed incomes may be especially well-suited to consider the Electric Home Rebate program as they could qualify for maximum rebates. This is where smart tax planning can play a key role.
    • The rebate will be a direct discount on the purchase price of the energy-efficient equipment rather than a credit on the tax return. The intent is to provide rebates on qualified purchases (that are “Energy Star certified”) at the point of sale.
    • Importantly, however, given Federal and State rules need to be updated to administer the Electric Home Rebate Program, this third prong of The IRA is not expected to be up and running until later in 2023, and the details are expected to differ by state.

If you have any questions or would like more information about how you may benefit from these Inflation Reduction Act Programs from a tax-planning perspective, please reach out or give us a call at Callahan Financial Planning at 800-991-5195.

Callahan Financial Planning announces new tax manager

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We are excited to announce the first issue of our new team spotlight series. Our goal is to provide an opportunity for current and potential future clients to learn more about our team of professionals who are dedicated to serving you.

This series kicks off by highlighting our new Tax Manager, Liga Tyack.

Liga joined our team in March, 2022 and was brought on to oversee the entire company’s tax service offerings. She brings over 20 years of experience providing international and domestic tax advice in financial services, investment management and private equity as well as biopharma and technology industries. Her areas of expertise include domestic and international tax planning, audit defense, transfer pricing, business and intangible property valuation, public affairs and policymaking.

Some of Tyack’s former roles include Tax and Trade Economist Consultant with multiple global consulting firms including Charles River Associates, DLA Piper and PwC, and in-house Tax and Transfer Pricing Advisor at publicly traded investment management firms, as well as serving the IRS/APA as a Senior Economist and tax policy maker for the U.S. Treasury.

When asked what drew Liga to the firm, she stated: “I joined Callahan Financial Planning, because I want to contribute to a growing, company with smart, kind and dedicated employees who above all else put their clients’ needs first. It’s a brave firm that is constantly pushing themselves to succeed and I look forward to leveraging my extensive tax background to support our clients’ investment, income tax, and retirement planning needs. I was also drawn to the culture that deeply values their ‘local family’ roots and believe that I bring a unique and valuable perspective to an already strong team.”

One of Liga’s favorite quotes is from children’s author, Roald Dahl, “Somewhere inside all of us is the power to change the world.” This concept has served her well in her work with clients as well as her civic and volunteer work.

As a long-time San Francisco Bay area resident, Tyack now resides in Marin County. She received her Bachelor of Arts degree from Stanford University, Stanford, CA in Quantitative Economics/Applied Math and her Master of Arts degree from University of California, Santa Cruz, Santa Cruz, CA in International Economics with a concentration in Trade and Finance.

Tyack served on Honorary Consul for the Republic of Latvia in Northern California from 2011–2020, appointed by the Office of Foreign Missions of the U.S. State Department in partnership with the Latvia Ministry of Foreign Affairs. In this civic position, Tyack represented the Republic of Latvia at the 70-member San Francisco Consular corps and created and promoted programs to strengthen the cultural, economic and diplomatic collaboration between Latvia, the international diplomatic community and diaspora of Northern California and the academic, civic and business communities located in the Silicon Valley.

In 2020, she received the ‘Cross of Recognition, 2nd Order of Grand Officer’ awarded by the current President of Latvia, Egils Levits, for her ten-years of civic work as Honorary Consul for the Republic of Latvia in Northern California.

Additionally, Tyack is a member of Stanford Professional Women, the Silicon Vikings, which supports venture capital and tech start-up based in Scandinavian and Baltic countries, as well as the San Francisco Yacht Club and their youth sailing and racing programs. In her free time, she likes to write poetry, play the piano, go hiking and enjoy her captain’s license by sailing in the San Francisco Bay, as well as the Caribbean and Baltic Seas.

If you would like to learn more about how Tyack and her team can help you navigate your income taxes, retirement planning, and how a tax-efficient investment strategy can better prepare you for retirement, contact her at 415-795-8600 or by emailing team@callahanplanning.com.

About Callahan Financial Planning: Callahan Financial Planning is an independent fiduciary financial advisor, providing financial planning and investment management services with six offices across 3 regions: San Rafael, San Francisco, and Mill Valley in Northern California, in Omaha and Lincoln in Nebraska, and in Denver, Colorado. Callahan Financial Planning is a federally registered investment advisor serving clients throughout the U.S., and our practice is one of the largest NAPFA financial advisory practices in the some of the markets we serve. On March 31, 2021, TS Prosperity Group, a division of TS Bank, acquired Callahan Financial Planning and together, share the highest level of client care and integrity in financial services as fiduciaries.

Callahan Financial Planning Joining TS Prosperity Group

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Callahan Financial Planning, an independent, fee-only fiduciary financial advisory firm, has announced it will be merging its operations with TS Prosperity Group. This partnership will double the size of the combined businesses to an estimated $450 million in assets under management, and help the firms provide trustee services, enhanced tax planning, and improved technology to clients.

Both organizations share the highest level of client care and integrity in financial services as fiduciaries. This form of relationship ensures conflicts of interest are mitigated and recommendations are always in the best interests of clients.

Callahan Financial Planning provides holistic personal financial planning that includes the complex integration of investments, income taxes, retirement, insurance, and estate planning for individuals and families. Financial advisory offices are in San RafaelSan Francisco, and Mill Valley in CaliforniaOmaha and Lincoln in Nebraska; and Denver and Centennial in Colorado.

When asked about the partnership, Callahan Financial Planning President William Callahan stated: “The culture of our organization has always been centered around our clients and the planning experience they receive. So when we considered combining organizations, it became clear how complimentary our approaches were, including our mutual focus on client impact, and our approach seeking to provide unconflicted financial advice. Ultimately, what convinced us to proceed together was just how much better the experience could get with the shared resources of the two highly compatible organizations together.”

Callahan Financial Planning will stay a separately identifiable division of TS Banking Group, registered as an independent investment adviser with the U.S. Securities and Exchange Commission. The TS Prosperity Group will maintain its regulatory status as the trust division of TS Bank, regulated by the Iowa Division of Banking and as a Member of the Federal Deposit Insurance Corporation. Certain employees and operations are anticipated to be eventually shared between TS Prosperity Group and Callahan Financial Planning.

“Callahan Financial Planning’s vision aligns with our philosophy of great planning to maintain and grow your wealth for today and the next generation,” said TS Banking Group Chief Operating Officer, Kristi Krayneski. “They have a similar culture and mindset on how to help clients achieve financial dreams; their business model provides strength to our investment services and our trust services add strength to their generational planning approach.”

Established in 2010, Callahan Financial Planning has received many accolades, including being named one of the “Top Firms in Nebraska” by Investor.com, Omaha’s Choice Awards “Favorite Financial Planning Firm,” and among Consumer Affairs “Best Financial Advisors in Omaha” in 2020. The firm expanded to California in 2019, and Colorado in 2020.

TS Prosperity Group services include the management of trusts, estates, and conservatorships, along with investment management, retirement planning, and estate planning. TS Prosperity Group is a division of TS Banking Group, a community banking group headquartered in Treynor, Iowa, representing over $1 billion in banking and fiduciary assets across IowaIllinois, and North Dakota.

The combined organization includes five Certified Financial Planner™ professionals, three Chartered Financial Analyst® charterholders, a Certified Public Accountant, and a Registered Life Planner®.

If you have any questions about this partnership or want to learn more, please call TS Prosperity Group at (844) 487-3115 or Callahan Financial Planning at (800) 991-5195.

About Callahan Financial Planning: Callahan Financial Planning is an independent, fee-only registered investment advisor with offices in Omaha and Lincoln in Nebraska, San FranciscoSan Rafael and Mill Valley in California, and Denver and Centennial in Colorado. The firm serves individuals and families, typically close to retirement, who have some situational complexity and are seeking independent guidance relating to their investments, taxes, or estate planning, and other personal finance topics. For more information, visit callahanplanning.com.

About TS Prosperity Group: TS Prosperity Group offers a combination of fiduciary and institutional investment management services. As the Trust division of TS Bank, the foundation for TS Prosperity Group has been in place for nearly 100 years, founded in 1923. The institutional investment management philosophy developed internally over the last ten years and the division became TS Prosperity Group in 2016. The firm is headquartered in Council Bluffs, Iowa with $230 million assets under management. For more information visit tsprosperitygroup.com.

Callahan Financial Planning Opens Denver Metro Financial Advisory Office in Centennial, CO

Denver – Jun 12, 2020 – Callahan Financial Planning, a fiduciary financial planning and investment advisory company, has announced the opening of an office with financial advisors in Centennial, CO. The office is located at 6500 S Quebec St, Centennial, CO 80111 in the Denver Tech Center.

Clients will be served by a team of 4 Certified Financial Planner™ (CFP®) practitioners, a Chartered Financial Analyst (CFA®) charterholder, an IRS Enrolled Agent, and supporting staff. Read the rest of this entry »

Callahan Financial Planning’s Statement for Racial Equity

“During a time of tremendous upheaval in our society, culture, and economy, we’re also faced with a painful reminder of the racism still present here today,” said William Callahan, founder and CEO of Callahan Financial Planning Company.

Effective today, Callahan Financial Planning has announced its intention to enhance its Callahan Financial Planning Gives program by doubling the annual giving to 10% of our annual income this year. Read the rest of this entry »

Support Racial Justice with These Charities

We know many are interested in donating to causes that support justice and equality under our law, socially, and economically, and we’ve provided a list of some charities that are actively supporting contemporary needs.

Given our offices are in San Rafael, San Francisco, and Mill Valley in Northern California, in Omaha and Lincoln in Nebraska, and in the Denver metro area in Centennial Colorado, much of the charities below focus on causes local to these regions, but several national charities are listed as well. We welcome suggestions to the list as well. Read the rest of this entry »

State Income Tax Relief for Military Spouses In California

If you’re a member of the military, you understand all too well the many difficulties that come with serving your country. One of the more notable challenges is the impact of new permanent change of station (PCS) orders on you and your family. These often require you to move your entire life to a new location, sometimes with limited time to prepare.

On December 31, 2018, legislation was passed through the Veterans Benefits and Transition Act of 2018 (VBTA) creating further opportunities to ease the financial burden that may accompany PCS orders to a new state. This new legislation expanded upon previous provisions under the Military Spouse Residency Relief Act of 2009 (MSRRA) relating to state income taxes.

One of the most significant expansions of this new law was to now allow spouses of active-duty military members to assume the state of residency of the servicemember for income tax purposes without having lived in the state. Read the rest of this entry »