Inflation Reduction Act = Money in Your Pocket

On August 16, 2022, President Joe Biden signed into law the strongest U.S. climate action plan in history. 

The Inflation Reduction Act provides $369 billion to promote clean energy and climate justice. It was designed to create hundreds of thousands of jobs, spur clean energy innovation, and strengthen manufacturing in the U.S. 

This law moves us closer to President Biden’s pledge to cut climate pollution 50 to 52 percent from 2005 levels by 2030.

Hooray!

What Does This Mean for You?

The most direct and immediate consumer-focused advantages come in the form of tax credits and rebates for buying emissions-reducing goods and services.

What Kinds of Emissions-Reducing Goods and Services?

The Inflation Reduction Act was intended to incentivize Americans to make their homes and lives more energy efficient and less reliant on fossil fuels. 

It will help you pay for things like new windows, solar panels, heat pumps, EV’s, and much more. 

Bundle and Save Even More

In addition to the Inflation Reduction Act, many states, cities, and utilities are offering their own rebates and tax credits for individuals making energy efficient upgrades. 

For example, Xcel Energy, who serves customers in portions of Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas, and Wisconsin, is offering fantastic rebates for things such as heat pumps, heat pump water heaters, insulation & air sealing, and more. 

Individuals can bundle these credits and rebates and potentially save thousands off the cost of their project. Trust me. I’ve seen it firsthand.

Rebates and Tax Credits – What’s the Difference?

Rebates are upfront discounts. They are sometimes called point of sale discounts. 

Tax Credits can only be used to offset your federal or state taxes owed. You file for your tax credits when you file your taxes. 

Many energy efficient upgrades qualify for both rebates and tax credits.

Who Qualifies for These Rebates and Tax Credits?

It’s complicated. Some rebates are for everyone regardless of income. Some rebates are available only to income qualified individuals. It depends on which rebate you are going after. 

High-Efficiency Electric Home Rebate ACT (HEEHRA)

HEEHRA provides point-of-sale rebates to help low- and moderate-income households across the U.S. electrify their homes.  

The HEEHRA program covers 100% of electrification project costs up to $14,000 for low-income households (those making under 80% of Area Median Income). It covers 50% of electrification project costs up to $14,000 for  moderate-income households (those making between 80% and 150% of the Area Median Income). 

Wondering if you qualify for HEEHRA? Rewiring America has a handy calculator to help you figure out if you will qualify based on your zip code. Here is a link. 

If you do qualify, you should wait for the program to roll out. These savings are huge. It’s well worth the wait to take advantage of this kind of cash. 

Note: as of December 2023 HEEHRA has not yet rolled out. It is expected to roll out in 2024. 

Be sure to check back here at Lighter Footsteps. I’ll update this post when HEEHRA has been rolled out and available for those who qualify.

I Don’t Qualify for HEEHRA. Now What?

If you are neither low or moderate-income, you will still likely qualify for rebates. Most state and utility based rebates are not income dependent. 

Tax Credits are also not income dependent, but you must have income tax to offset. So if you are on a fixed or low income, you may not be able to take advantage of all of the tax credits. 

I know this is a bit confusing. The bottom line is everyone is eligible for some rebate and/or tax credit. However the discounts are greater for lower income earners.

Annual Caps on Tax Credits

There is an annual cap on how many tax credits you can take advantage of in one year. For example, heat pumps qualify for a tax credit up to $2,000 annually.

So if your home currently has two gas furnaces, and you are replacing each of them with an air source heat pump AND you are replacing your existing gas water heater with a heat pump water heater, you are installing three heat pumps. 

You can only qualify for a tax credit up to $2,000 annually for heat pumps, so you might want to consider installing two of the heat pumps in one calendar year (replace those two furnaces), and the third (the water heater) in the next calendar year. That way you could qualify for a $2,000 tax credit each year for a total of $4,000 in tax credits.

Make sense? 

Tax Credit Rollovers

The Inflation Reduction Act allows you to roll SOME tax credits into future tax years. As far as I can tell the only credit you can roll over into future years is the credit you receive for installing a geothermal heating and cooling system.

Yes, you can install geothermal in residential single family homes. I have a geothermal system in my home. I’ll cover geothermal in a future post.  

The Inflation Reduction Act is offering an uncapped 30% tax credit on the entire cost of installing a geothermal heating and cooling system. This includes the cost of the equipment, labor, drilling, etc. If you can only use a portion of the tax credit in one calendar year, you can roll the remaining credit into the next calendar year. 

I am not aware of any other tax credits that you can roll into future years. If you know of any, please leave a comment and let me know.

How Do You Get Started?

My suggestion is for you to figure out what you need (new windows, insulation, etc.), and then see what rebates and tax credits you qualify for.

To find out what you need, it is best to start by getting a home energy audit done on your home. 

An energy audit is when you hire someone to come into your home and assess where it is least efficient. They typically do what’s called a blower door test. This is pretty much exactly how it sounds. They seal up your house by closing windows and doors, then put a device on your front door that sucks all of the air out of your house and creates a vacuum. This enables them to identify where the leaks are coming from. 

Oftentimes you’ll discover you would benefit from additional insulation in your attic. Maybe you’ll discover a window or two that are especially leaky and let in tons of air. Maybe your furnace is ancient and you’d benefit from replacing it with a heat pump.    

After your home auditor has done all of the testing, they will provide you with a written report. That report will help you prioritize where to invest your Inflation Reduction Act $. 

The good news is the energy audit itself is eligible for a tax credit up to $150. More info can be found here. 

What Sorts of Energy Efficient Upgrades Qualify?

The Inflation Reduction Act was designed to incentivize people to be more energy efficient and stop using fossil fuels.

All sorts of things qualify including: heat pumps, electrical panel upgrades (if done to support electrification), EVs, rooftop solar, weatherization and insulation, induction stoves, etc. 

Rewiring America does a fantastic job outlining exactly what sorts of things qualify for rebates and what sorts of things qualify for tax credits. Their website is a treasure trove of information on the Inflation Reduction Act.  

Local Rebates and Tax Credits

In many cases states, cities, and local utilities are all offering some sort of rebate and/or tax credit for energy efficient upgrades. You can bundle these together to save even more. 

This means each individual must do their own research to see what is available in their area. I’m talking about a lot of money folks. It’s worth taking the time to look into it.  

Most of the time utilities require you to use a certified installer for your work in order for you to qualify for the rebate. Xcel has a list of certified installers on their website. I assume other utilities do too. And remember, certified installers are going to be able to answer rebate and tax credit questions specific to your location. 

Those in the business (HVAC, solar, electrician, etc.) are up to their eyeballs figuring this stuff out. A good contractor will be able to help you figure out what you qualify for, and help you navigate the process.

No Time Like Today

There has never been a better time to invest in electrification and energy efficiency upgrades. 

Many of these upgrades will save you money in your monthly utility bills, so it won’t take too long for you to see a great return on your investment. 

Stay tuned for future posts where I’ll cover heat pumps, EV’s, rooftop solar, and more. 

Have you done anything to electrify your home and/or taken advantage of rebates and tax credits? Leave a comment and let me know about your experience.  

Disclaimer: The Inflation Reduction Act is complicated and somewhat of a moving target. Some discounts are still rolling out. I have done my best to provide accurate information, but I do not claim to be an expert. It is up to you to do your own research to verify what rebates and tax credits you qualify for. Better yet, ask your tax professional. I will continue to update this post as more information becomes available.