Here is an overview of the federal tax provisions that go into effect in 2023 and other tax updates for tax year 2023:

• Provisions that go into Effect in 2023
• Tax Year 2023 Annual Changes and Reminders
• New Reporting Requirements for Third Party Network Transactions

Provisions that go into Effect in 2023

The following federal tax provisions from the Inflation Reduction Act go into effect in 2023:

Energy Efficient Home Improvement Credit (formerly known as the Nonbusiness Energy Property Credit)

Included in the Inflation Reduction Act of 2022 was the Energy Efficient Home Improvement Credit. Taxpayers that make qualified energy-efficient improvements to their existing home in 2023 can qualify for a nonrefundable tax credit of up to $3,200 depending on what type of improvements they make to their primary residence.

If a taxpayer uses their home partly for business the amount of the credit is calculated as follows:

• Full Credit if home is used 20% or less for business
• Credit is based on share of expenses allocable to nonbusiness use if home is used for more than 20% for business.

There are two separate parts to this credit:

Part I – Heat Pumps and Biomass Stoves and Boilers

For heat pumps, biomass stoves and biomass boilers the credit is 30% of their cost up to a limit of $2,000 per year. In order to qualify these items must have a thermal efficiency rating of at least 75%. The costs may include labor for installation

Part II – Other Qualified Energy Efficiency Improvements and Residential Energy Expenses

The credit is 30% of the cost of qualified energy efficiency improvements and residential energy expenses up to a limit of $1,200 per year.

The following types of improvements or residential energy expenses (the total credit for all cannot exceed $1,200) qualify for the credit:

• Exterior doors that meet Energy Star requirements. Credit is limited to $250 per door and maximum credit for doors in $500.
• Exterior windows and skylights that meet Energy Star Most Efficient certification requirements. Maximum credit for qualified windows is $600 per year.
• Insulation and air sealing materials or systems qualify as long as they meet International Energy Conservation Code standards at the start of the year 2 years before installation. Only the materials qualify for the credit. There is no maximum limit for insulation other than the total for all qualifying improvements of $1,200.
• Residential energy property that meets the Consortium for Energy Efficiency highest efficiency tier qualifies for the credit with a maximum credit allowed each year of $600.

Qualified property includes the following:

• Central air conditioners
  • Natural gas, propane, or oil water heaters
  • Natural gas, propane, or oil furnaces and hot water boilers
  • Costs of electrical components such as panel boards, sub-panel boards, branch circuits and feeders needed to support the residential energy property qualifies if they meet the National Electric Code and have a capacity of 200 amps of more.

• Allows a credit of 30% of the cost for a home energy audit up to $150.

For more information see the following:

• Energy Efficient Home Improvement Credit page on the IRS website
• Clean Energy Tax Credits for Consumers on U.S. Department of Energy’s website

Residential Clean Energy Credit

The Inflation Reduction Act of 2022 extended and increased the Residential Energy Credit and renamed it the Residential Clean Energy Credit. Taxpayers that make certain energy saving improvements to their home located in the United States may be eligible for this credit.

This nonrefundable credit is 30% of the costs of new, qualified clean energy property that is installed during 2023. Any unused credit maybe carried forward to future years.

There is not an annual or lifetime limit for this credit (except for fuel cell property). A taxpayer may claim this credit every year that they install eligible property until the credit begins to phase out in 2033.

If a taxpayer uses their home partly for business the amount of the credit is calculated as follows:

• Full Credit if home is used 20% or less for business
• Credit is based on share of expenses allocable to nonbusiness use if home is used for more than 20% for business.

The following improvements qualify for this credit:

• Solar energy panels
• Solar water heaters that are certified by the Solar Rating Certification Corporation or comparable entity endorsed by the taxpayer’s state.
• Wind turbines
• Geothermal heat pumps that meet Energy Star requirements in effect at the time of the purchase.
• Fuel cells – Credit is limited to $500 for each half kilowatt of capacity. If more than one person lives in the home, the combined credit for all residents cannot exceed $1,667 for each half kilowatt of fuel cell capacity.
• Battery storage technology that has a capacity of at least 3 kilowatt hours.

For more information see the following:

• Residential Clean Energy Credit page on the IRS website
• Clean Energy Tax Credits for Consumers on U.S. Department of Energy’s website

Energy Efficient Commercial Building Deduction

• The Section 179D deduction was modified for eligible property that is placed in service after December 31, 2022.
• The deduction increases the maximum deduction to $5.00 per square foot and will be subject to an annual inflation adjustment.
• The qualification threshold for property is a 25% energy cost savings, with a base deduction equal to 50 cents per square foot and a bonus depreciation deduction equal to $2.50 per square foot.
• The deduction increases on a sliding scale for each percentage point above 25% of energy cost savings. The increase is capped at a 50% reduction with a base deduction set at $1 per square foot and a bonus deduction equal to $5.00 per square foot.

Clean Vehicle Tax Credits

Included in the Inflation Reduction Act were three nonrefundable credits for clean vehicles.

For details on these three credits see the “Clean Vehicle Tax Credits for 2023 and Beyond” (link this to that page) page in the Crosslink Tax Resource Center.

Tax Year 2023 Annual Changes and Reminders

Mileage Rates for 2023

• Business: 65 cents per mile
• Medical: 22 cents per mile
• Charitable purposes: 14 cents per mile

Standard Deduction for 2023

• $27,700 – Married Filing Joint
• $20,800 – Head of Household
• $13,850 – Single and Married Filing Separate

Additional Standard Deduction for 65 and older/Blind

• $1,500 – 65 or older or blind (per person)

or

• $1,850 – 65 or older and blind and taxpayer is unmarried and not a surviving spouse

Maximum Earned Income Tax Credit

• $7,430 – 3 or more children
• $6,604 – 2 children
• $3,995 – 1 child
• $600 – For taxpayers without qualifying children

Refundable Portion of Child Tax Credit – $1,600

New Reporting Requirements for Third Party Network Transactions

Remember that beginning this year (2023) individuals who receive $600 or more in income from goods and services from a third-party payment network (such as Venmo, Cash App, PayPal, or Zelle) will be receiving a Form 1099-K (Payment Card and Third-Party Network Transactions) in January 2024.

Originally this change was supposed to go into effect for 2022 however the IRS delayed its implementation by one year.

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