New Federal Tax Credits and State Rebates

To Help Pay for Home Heating, Efficiency, and Weatherization Improvements

Michael Daley

The Inflation Reduction Act (IRA) does not just provide a boatload of new money to help you be more comfortable in your home while helping to save planet Earth, it provides a whole convoy of boatloads! That money is flowing in two channels – as federal tax credits that will offset money you owe to Uncle Sam and as direct rebates administered at the state level to offset the costs of all kinds of home heating, efficiency and weatherization projects.

The expanded rebate incentives are especially good news for low- and middle-income homeowners who often have not benefited from the kinds of tax credits used in the past. The IRA covers 100% of the costs of certain upgrades (up to $14,000) for low-income homeowners and 50% of the costs for middle-income ones. Each state will be setting the rules for their programs. Rewiring America provides a useful calculator on what individual households can expect: https://www.rewiringamerica.org/app/ira-calculator.

One thing to keep in mind as you contemplate what the IRA may offer to improve your own home. Where there is a sudden pot of gold, there will be gold diggers. Be sure that you connect with reputable service providers and consultants that have the experience and track record to get the job done right. Energy projects done wrong won’t get you, the planet, or Uncle Sam their money’s worth.

You have the pages of G.E.T. to rely on and definitely reach out to your local community action agency or others that do weatherization. They likely know and work with your local contractors.

There are three major elements to the IRA for homeowners:

1. The 25C Energy Efficiency Home Improvement tax credit

2. The High-Efficiency Electric Home Rebate (HEEHR) Program

3. The HOMES Rebate Program

Be aware that the HEEHR program and HOMES rebates cannot be combined with one another; however, either may be combined with the 25C tax credit.

The 25C Energy Efficiency Home Improvement tax credit

This home improvement tax credit has been around for a while, but starting in 2023 the IRA increases the value of the tax credit to 30% and makes it possible for you to receive a benefit each year. The value of the tax credit is annually capped at the following:

• $2,000 for electric and gas heat pumps and heat pump water heaters, biomass stoves, and boilers

• $1,200 for weatherization and electrical panel upgrades that are in many cases required for qualified energy-efficiency upgrades

Don’t forget that tax credits already exist for projects you have underway in 2022. The IRA provides some additional support to these soon to end credits.

High-Efficiency Electric Home Rebate (HEEHR) Program

The IRA creates a new $4.275 billion program called the High-Efficiency Electric Home Rebate (HEEHR) program. Funding flows from the Department of Energy to your state energy office. Each state will be responsible for setting up its HEEHR program aimed at providing rebates to households with a total annual income that’s less than 150% of the local median income. The local median income for your area will be defined and determined by your state. The maximum rebate is $14,000.

The program’s maximum rebate values include:

• $2500 for electric wiring

• $8000 for heat pumps,

• $1600 for air sealing and insulation

• $4000 for breaker box upgrades to allow for increased use of electricity.

• $840 toward electric stove

• $840 toward heat pump dryer

• $1750 for heat pump water heater

The HOMES rebate program

The IRA creates a second brand-new $4.3 billion program called the Home Energy Performance-Based, Whole-House rebate program (HOMES). The HOMES rebate program will also be overseen by your state’s energy office. HOMES incentives aren’t restricted by income and are based on the actual performance of your whole-home energy efficiency and electrification improvements.

These performance-based market incentives aren’t paid to the home-owner, but to the contractors, installers, or home performance companies that do the work. The rationale behind this is to encourage businesses doing home energy improvements to complete high-quality installations, maximize energy savings, and ensure the project performs as promised.

According to SEALED, HOMES will lead to “…better projects, more comfortable, healthier [sic] homes, and guaranteed performance.”

When can I tap into these new programs?

Extended or enhanced tax credits are available for projects beginning this year. The new higher tax credit begins in 2023. Check with your contractor and tax adviser to see if you qualify.

Funds begin to go to the states in 2023. Each state will have to define and adopt rules, provide authorizations, increase staff, etc. to get these programs up and running. All this is expected to take up to a year or more. As always, you can count on G.E.T. to summarize in each issue what becomes available in your State.