(BPT) - In August 2022, the U.S. government passed the Inflation Reduction Act (IRA), a comprehensive energy policy bill that provides a record $370 billion for climate and energy initiatives. The act, focused on clean energy and climate change, has wide-reaching implications for individuals and families across the country.
Specifically for homeowners, the IRA comes with incentives to upgrade and install environmentally friendly equipment and appliances throughout their home. By taking advantage of the tax credit, homeowners can reduce their tax bill by up to $3,200 and offset some of the upfront costs of making energy-efficient home improvements.
The following tips help to break down how homeowners can leverage this new piece of legislation and its home energy incentive programs.
Dive In - Understand the two homeowner incentive programs - Tax Credits and Rebates. The IRA created these two initiatives to empower homeowners to install high-efficiency equipment. Additionally, in some cases, the qualifying equipment may be different.
- Tax Credits - The IRA extended and enhanced a tax credit, the Energy-Efficient Home Improvement Credit (EEHIC). Previously this type of credit was the Non-Business Energy Property Credit, which was restructured and expanded as part of the new law.
Federal tax credits can be leveraged for the next 10 years, until December 31, 2032, and apply to the purchase and installation of highly efficient products, including HVAC equipment.
Homeowners can earn up to $2,000, or 30% of the cost of the product and installation, for heat pumps; $600 for highly efficient furnaces; and $600 for qualifying air conditioners. There is a yearly cap on the tax credits of up to $3,200, and the credit cap resets every year. So, a homeowner can replace one system, such as a heat pump, one year and other equipment the next.
- Rebate Program - The High-Efficiency Electric Home Rebate Act (HEEHRA) Program provides point-of-sale consumer discounts to enable low- and moderate-income households across America to electrify their homes. The program covers up to 100% of electrification project costs (up to $14,000) for low-income households and 50% of costs (up to $7,000) for moderate-income households. Eligible homeowners can receive:
- Up to $8,000 for all-electric heat pumps
- Up to $4,000 for an electrical load service center upgrade
- Up to $2,500 for electric wiring
- Up to $14,000 maximum for all eligible measures
HEEHRA can stack with federal energy efficiency and electrification tax credits.
Now that we've covered the basics of the two incentive programs within the IRA, here is a quick checklist on how homeowners can best leverage the IRA:
- Meet the necessary requirements: In order to qualify for the credit, homeowners must meet certain requirements, such as using products that adhere to specific energy efficiency standards. The amount of savings an individual can expect depends largely on the type of appliance. One must obtain a Manufacturer's Certification Statement - a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit. Rheem, an innovator in manufacturing HVAC equipment, has a number of heating and cooling devices which qualify for the tax credit.
- Assess your current situation: Homeowners may benefit from the IRA's tax credit for energy audits. Hiring a qualifying inspector and conducting a professional energy assessment of the home can help provide a roadmap and determine all the areas where savings can be leveraged.
- Upgrade heating and cooling appliances: Natural gas prices are continuing to rise, making energy-efficient upgrades to products like heat pumps an efficient and cost-effective choice. For water heating, this tax credit gives homeowners equal to 30% of installation costs for qualified high-efficiency products, up to: $600 for gas-fired tankless and gas-fired tank type storage water heaters; and $2,000 for ultra-high-efficiency heat pump water heaters. Owners can also consider installing a geothermal heat pump in their homes which could entitle homeowners to a federal tax credit of up to 30% of the cost, including installation, with no upper limit.
Once homeowners take the necessary steps and feel empowered to make equipment changes, they can expect to see the following benefits:
- Save money on federal income taxes: By taking advantage of the tax credit, homeowners can reduce their tax bill, providing big savings for their family.
- Reduce energy bills: By making energy-efficient improvements to their homes, homeowners can reduce energy usage and lower their monthly utility bills.
- Increase the value of a home: Energy-efficient upgrades can make homes more attractive to potential buyers, who may be willing to pay more for a home that is eco-friendly and has lower energy bills.
An increasing number of homeowners today are concerned about the impact they are having on the environment. Seeking home solutions that are energy efficient and lower emissions, while utilizing IRA incentives, makes it easier for homeowners to win on all fronts. In addition, when considering making the switch to energy-efficient products, leading manufacturers, such as Rheem, also provide details on a variety of other incentives that can be leveraged. By making energy-efficient home improvements, homeowners can save money while reducing their carbon footprint and contributing to a cleaner, more sustainable future.