How the Inflation Reduction Act can help you save money
Planning home improvements to increase the energy efficiency of your house? The Inflation Reduction Act could save you money on energy efficient appliances and upgrades through the renewed Energy Efficient Home Improvement Tax Credit (25C). Homeowners can get a tax break on high-efficiency equipment on home upgrades, such as heat pumps, air conditioning systems, gas furnaces, heat pump water heaters and insulation through 12/31/2032. Enjoy the benefits of a new high-efficiency system while lowering your energy bills and getting money back!
What is the Inflation Reduction Act?
The Inflation Reduction Act is a $740 billion climate and health care bill that aims to put the U.S. on a path to emissions reduction by investing in climate protection. According to the Committee for a Responsible Federal Budget – a bipartisan, non-profit organization – the Act includes $386 billion of climate and energy spending and tax breaks to promote clean energy generation, electrification, green technology retrofits for homes and buildings and greater use of clean fuels, among other purposes.
How Can the Inflation Reduction Act Save You Money?
As part of the Inflation Reduction Act, you will have access to cost-saving options for purchasing energy efficient and electric appliances or making home improvements to electrify your home or increase its energy efficiency. Benefits include rebates to low and moderate income households for installing heat pumps. They also include energy efficiency improvement tax credits for installing Consortium for Energy Efficiency (CEE) highest efficiency tier HVAC equipment.
Energy Efficiency Home Improvement Tax Credit (25C)
The renewed Energy Efficient Home Improvement Credit (25C) increases the tax credit limit to 30% of the total cost for installing CEE Top Tier high efficiency equipment, such as heat pumps, central air conditioning systems, furnaces, hot water boilers and more, and extends the offering through 2032. The 25C credit has an annual cap of $1,200 – including up to $600 for qualified air conditioner or gas furnace – or up to $2,000 with a qualified heat pump, heat pump water heater or boiler. The 25C credit applies to eligible equipment installed on or after January 1, 2022. There are no income requirements for this tax credit and it cannot be combined with other federal programs such as the HEEHRP. To download a qualification certificate for equipment installed after January 1, 2022, visit our Federal Tax Credits page.
Eligible equipment includes:
- Heat pumps and heat pump water heaters
- Energy-efficient HVAC systems (including furnaces, boilers, and central AC)
The 25C credit has an annual cap of $1,200 (except heat pump):
- Up to $600 each for a qualified air conditioner or gas furnace
- Up to $2,000 with a qualified heat pump, heat pump water heater, or boiler
High Efficiency Electric Home Rebate Program
Effective January 1, 2022, the High Efficiency Electric Home Rebate Program (HEEHRP) provides up to $14,000 in direct consumer rebates for families to buy heat pumps – a heating and air conditioning system that works year-round to keep you comfortable – or other energy-efficient home appliances, saving eligible families at least $350 a year on utility bills. For Energy Star-certified heat pumps, installation rebates can total up to $8,000. Household income qualifications for the heat pump installation rebate are as follows:
Up to 100% of the total cost if income is less than or equal to 80% of area median income
Up to 50% of the total cost if income is greater than or equal to 80% but less than or equal to 150% of area median income
To locate the median income in your area, visit HUD USER (https://www.huduser.gov/portal/datasets/il.html#2021_query).
The effective dates and funds available will vary by state. $9 billion will be available to states and Tribes from the Inflation Reduction Act for consumer home energy rebate programs. The DOE anticipates that the state level programs will be operational as early as Spring 2023. View allocation by state here (https://www.energy.gov/articles/biden-harris-administration-announces-state-and-tribe-allocations-home-energy-rebate).
Rebates are also available to insulate and seal a house (up to $1,600 rebate).
To qualify for the High Efficiency Electric Home Rebate Program, your household income must be less than or equal to 150% of the area median income.
Overall, the rebate program allocates $4.5 billion to states for home energy improvement projects. Rebates and funding will be handled on the state level, not by individual HVAC manufacturers or dealers. The duration of the program will depend on the amount of funds available within each state and the number of rebates distributed.
HEEHRP provides HVAC rebates up to $14,000 per household, including:
- Up to $8,000 for installing Energy Star qualified heat pumps
- Up to $1,600 for home insulation and sealing
Eligibility and the amount of the rebate depends on household income:
For households below 80% of area median income, 100% of the system purchase price qualifies for the rebate.
For households that fall within 80% to 150% of area median income, 50% of the system purchase price qualifies for the rebate.
Households above 150% of area median income do not qualify for the HEEHRP rebate.
How Freedom financing can help
Unexpected expenses can be stressful and an inconvenience to you and your family. Here at Freedom, we are happy to offer multiple financing options that make sense to you and your current situation. Give us a call today to learn more about our financing options that will allow you the flexibility to secure your home improvement today.
What if homeowners had eligible equipment installed in 2022?
Homeowners who had eligible HVAC equipment installed on or after January 1, 2022, may be eligible for retroactive tax credits under this program. The 2022 tax credit is not as robust, but will credit 10 percent of the costs of installing qualified equipment and 100 percent of the costs associated with installing qualified water heaters, heat pumps, central air conditioning systems, furnaces, hot water boilers and air circulating fans.
With this tax credit, there is a lifetime limit of $500 or $300 for certain water heaters, heat pumps, and air conditioning systems for systems purchased in 2022.
Where Can I Learn More?
To learn more about how you can take advantage of the energy efficiency rebate programs and expanded tax credits resulting from the Inflation Reduction Act, as well as energy-efficient comfort solutions for every season, give us a call and speak to one of our comfort advisors.
For information on how to save on utility bills and receive tax credits for energy-saving appliances in your state, check out these Fact Sheets (https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/17/state-fact-sheets-how-the-inflation-reduction-act-lowers-energy-costs-create-jobs-and-tackles-climate-change-across-america/) from The White House. For more on how to utilize available tax credits, contact your tax professional for information.