Inflation Reduction Act Energy Efficiency Tax Credits and Rebates
The Inflation Reduction Act was signed into law in August 2022. One of the focuses of the Inflation Reduction Act is energy and climate change. The bill will invest $369 billion in this area to help drive down energy costs for consumers, reduce greenhouse gas emissions and increase energy security. This blog post will answer some commonly asked questions regarding energy efficiencies and renewable energy improvements covered by the Inflation Reduction Act.
There are two different components to the Inflation Reduction Act: tax credits and rebate programs. The tax credits are controlled at the national level, and there is currently more detailed information available on the distribution of the tax credits. The rebate programs will be handled at the state level, and there is only minimal information available on the distribution of those rebate programs at this time.
Energy Efficient Home Improvement Tax Credit
In 2023, the Energy Efficient Home Improvement Tax Credit will be for 30% of the cost of eligible energy efficiency improvements made to a home. Some of these improvements include:
- Home energy audit – 30% of the cost, up to $150
- Home insulation – 30% of the cost
- Heat pumps – 30% of the cost, up to $2,000
- Water heaters, furnaces, and central air conditioners – 30% of the cost, up to $600
There is an annual $1,200 cap on the tax credits that can be collected each year for energy audits, insulation, water heaters, air conditioners, and furnaces. Heat pumps boilers and biomass stoves have a $2,000 annual cap. There is no lifetime cap on these funds, so you could qualify for $1,200 each year.
This is an expansion of the existing Nonbusiness Energy Property Credit that runs through 2022 and covers up to 10% of the cost of eligible improvements up to $500. This current tax credit has a lifetime cap of $500.
Residential Clean Energy Tax Credit
The Residential Clean Energy Tax Credit helps cover the cost and installation of the following renewable energy systems:
- Solar panels
- Geothermal heat pumps
- Solar water heaters
- Storage batteries
The credit covers 30% of the cost and installation from 2022 to 2032. The percentage then decreases to 26% in 2033 and 22% in 2034. The credit has no annual or lifetime limit.
High-Efficiency Electric Home Rebate Program
The Inflation Reduction Act introduced the High-Efficiency Electric Home Rebate Program. The requirements of this rebate program and the distribution of its funds will be controlled at the state level. The parameters and funds listed here are the maximum funds that could be allotted. As more information is finalized for the state of Michigan, we will update this section.
The High-Efficiency Electric Home Rebate Program is an income-qualified program. Households making less the 80% of the median area income could qualify for up to $14,000 in rebates for electrification projects. The rebates could cover up to 100% of the improvement cost for certain improvement measures, including up to $8,000 for air-sourced heat pumps.
Home Owner Managing Energy Savings (HOMES) Performance Rebates
The requirements of this rebate program and the distribution of its funds will be controlled at the state level. The parameters and funds listed here are the maximum funds that could be allotted. As more information is finalized for the state of Michigan, we will update this section.
The HOMES rebate program is based on measured or modeled energy savings achieved through whole home upgrades. Modeled energy saves of 20-35% could be eligible for up to $2,000 in rebates (low and moderate-income individuals could qualify for up to $4,000 in rebates). Modeled energy savings over 35% could receive $4,000 in rebates and up to $8,000 for income-qualified individuals. Measured energy savings over 15% could be eligible for $2,000 in rebates, and up to $4,000 for income-qualified individuals. You can see a full breakdown of the HOMES rebate program from the Building Performance Association here.
Inflation Reduction Act Frequently Asked Questions
What is the difference between tax credits and tax rebates?
A tax credit is used to offset any taxes that are owed; meaning if you do not owe anything in taxes, there is no benefit of a tax credit for you. A rebate is provided to eligible parties regardless of taxes owed.
One of the biggest differences between tax credits and rebates is when they occur. A tax credit is given once a year when you file your taxes around April 15th for the previous year. Rebates can be given throughout the year.
Can I get both tax credits and rebates?
Yes, eligible energy-efficient improvements can receive both tax credits and rebates through the Inflation Reduction Act. However, you cannot combine the two Inflation Reduction Act rebate programs.
Can I combine the Inflation Reduction Act tax credits and rebates with utility rebates?
Yes, eligible improvements can receive tax credits and rebates from the inflation reduction act along with eligible rebates from local utility companies like DTE Energy and Consumers Energy.
I want to electrify my home should I wait for the electrification rebates?
No, act now to get a jump start on your electrification plans. We anticipate having more details from the state on the High-Efficiency Electric Home Rebate Program by Q2 of 2023. Electrification projects can take more planning than standard insulation upgrades. Contact Ecotelligent Homes today to schedule your home energy audit to start developing your electrification plan today. That will allow you to have a plan in place to be ready to act as soon as the details of the rebate program are made public.
Do different insulation measures each qualify for their own tax credit or rebate?
No, different insulation measures do not qualify for individual tax credits or rebates. All insulation measures are grouped into one insulation improvement category for the tax credit and rebates. The International Energy Conservation Code (IECC) has established criteria that the insulation must meet to be eligible for tax credits and rebates. Since Ecotelligent Homes has always been installed to ENERGY STAR standards, not just code minimum requirements, you can be assured our insulation improvements will meet the IECC requirements referenced by the tax credits and rebates.
Are the rebates and tax credits income qualified?
Yes, some of the rebates in the Inflation Reduction Act are income qualified. The electrification rebate program is income qualified and only eligible for households that are below 80% of the median area income. The HOMES rebate program could provide up to double the rebates to low to moderate-income individuals. You can see if you could qualify for the rebates using this estimating calculator.
If I electrify in 2023, will I get the tax credits and the rebates?
Not necessarily, if you install electrification improvements in your home before the state of Michigan announces its rebate program guidelines you may not be eligible for the rebates. However, you would still be eligible for the tax credit when you file your taxes the following year.
Curious about your tax credit and rebate options?
Our team at Ecotelligent Homes can help you determine what energy-efficient improvements your home would benefit from and the eligible tax credits and rebates you may qualify for. Contact us today!