Inflation Reduction Act (IRA)

Source: The White House, 8/15/22

Excerpts:

• Families that take advantage of clean energy and electric vehicle tax credits will save more than $1,000 per year.
• $14,000 in direct consumer rebates for families to buy heat pumps or other energy efficient home appliances, saving families at least $350 per year.
• 7.5 million more families will be able install solar on their roofs with a 30% tax credit, saving families $9,000 over the life of the system or at least $300 per year.
• Up to $7,500 in tax credits for new electric vehicles and $4,000 for used electric vehicles, helping families save $950 per year.
• Putting America on track to meet President Biden’s climate goals, which will save every family an average of $500 per year on their energy costs.

Source: NRDC, 10/24/22 (Courtney Lindwall)

Excerpts: 

Solarize your roof or update other home renewable energy options.

Though the price of rooftop solar has dropped more than 70 percent in the last decade, it still costs about $20,000 on average to install. Encouragingly, an expansion of a soon-to-expire solar tax credit will help make this more affordable for more people and shorten the time it takes for families to see a return on their up-front investment.

• What the Residential Clean Energy [Tax] Credit covers: You’ll get 30 percent back on what you pay for new household clean energy systems—like solar, wind, or geothermal systems that produce electricity or heating—as well as the labor to install them and the fees for permitting, inspection, and development. It also covers the purchase of stand-alone batteries with more than 3 kilowatt-hours of storage. There is no cap on the total spent. So spend $5,000 or $50,000 and still get a 30 percent tax credit. If you don’t owe that much in federal taxes, the remainder of the credit rolls over into the next tax year.
• When it starts and ends: The credit is applied retroactively, for projects completed between January 1, 2022 and the end of 2032. If you began the project in 2021 but completed it in 2022, it qualifies. (The credit for battery storage–only projects begins in 2023.) The credit is then reduced slightly to 26 percent in 2033 and 22 percent in 2034 for projects completed in those years.
• Who qualifies: There are no income or location restrictions to apply for this tax credit.

Invest in sustainable home improvements.

Many smaller, more low-tech upgrades can go a long way toward shrinking your carbon footprint, which is why the Inflation Reduction Act rewards residents who make all manner of climate-friendly renovations.

• What the Energy Efficient Home Improvement [Tax] Credit covers: Recently expired, this credit is getting a renewal and a big upgrade. Compared to the previous $500 lifetime max, consumers can now get 30 percent back, up to $1,200 per year, for energy-saving renovations like adding insulation or swapping out exterior windows that better keep cool air out in the winter and inside in the summer. It also incentivizes the purchase of certain electric, energy-efficient appliances, like heaters, AC units, and boilers. It ups the annual credit cap to $2,000 per year for items like über-efficient heat pump air conditioners, heat pump water heaters, and boilers. If you’re unsure which changes to make, the new law also offers a $150 tax credit per household for a home energy audit.
• When it starts and ends: The tax credit applies to projects completed between January 1, 2023 and the end of 2032. There are a handful of appliances, like hot-water boilers, for which the credit expires at the end of 2027.
• Who qualifies: As long as the improvements were made to a noncommercial home, you qualify. If you’re a renter or living in a multifamily building, you qualify too.

Take advantage of rebate programs for energy efficiency upgrades.

While tax breaks help incentivize efficiency upgrades, the high up-front costs of these projects still put them out of reach for many families. Thankfully, two new rebate programs established under the Inflation Reduction Act aim to cut sticker prices for climate-friendly renovations and appliances, with a larger portion of the benefits going to low- to moderate-income families. An important note: You cannot claim the same renovation project twice.

• What these rebate programs cover: The HOMES (Home Owner Managing Energy Savings) Rebate Program gets you cash back by shrinking your overall home energy use through weatherization renovations, like adding insulation, or by installing more efficient appliances, like heat pump clothes dryers. The amount you can get back depends on how much energy you’ve saved, how you prove those energy savings (through either modeling, which requires computer software, or measured energy savings), and your household income. Save more energy, get more cash. Plus, low- and moderate-income households qualify for double the rebate amount and are eligible for up to 80 percent of project costs. That’s $8,000 max if you cut energy use by 35 percent and $4,000 max if you cut energy use by 20 percent.
  • The “High-Efficiency Electric Home Rebate Act” offers low- to medium-income families as much as $14,000 per year in point-of-sale discounts for electrification projects—including up to $8,000 for a heat pump for space heating and cooling, $840 for an electric stove, and $1,600 for an insulation project.
• When they start and end: The rebates are expected to start in 2023 and run until September 30, 2031. However, these programs are run by the states, and so they may get up and running at different times. Information on how to claim your rebate is not yet available.
• Who qualifies: For the HOMES Rebate Program, everyone qualifies; however, low- to medium-income households can earn more cash back. For the High-Efficiency Electric Home Rebate Act, only low- to medium-income families qualify. Medium-income is defined as a household making up to 150 percent of its area’s median income. Low-income is defined as making less than 80 percent of its area’s median income.