The Inflation Reduction Act of 2022 directs billions of dollars toward businesses, organizations, and households to invest in clean energy technologies. Learn how you, as a consumer, can leverage these tax credits and rebates to make energy efficiency upgrades and save on heat pumps, solar PV, electric vehicles, and more.
By Maddie Lee
Maddie Lee is a Policy Analyst at Enel North America. She is educating Enel’s various businesses about the opportunities created by the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, across a wide range of technologies including renewable energy, green hydrogen, and EV charging infrastructure.
The Inflation Reduction Act of 2022 directs $370 billion toward incentivizing the implementation of clean energy technologies to reduce carbon emissions. And this money is not just for corporations and government entities – the Inflation Reduction Act also contains incentives for individual households (also, multi-family or rental housing building owners, thereafter termed “consumers”). For corporations, this means your employees and your contractors. For cities and municipalities, this means your residents and your constituents. Whether these end-use consumers are looking to make their homes more energy efficient, upgrade to a new HVAC system, harvest renewable energy by installing a rooftop solar photovoltaic (PV) system, or replace their gasoline car with an electric vehicle, there are various federal tax credits and rebates they can leverage.
In this guide, we mainly focus on how you, as a consumer, can start planning now to save money via home energy rebates in the future. While the cashback rebates are not yet available (as of February 2023), the federal government will be working with the states and tribes over the next few months on the best way to roll out these rebates to consumers. We recommend that you start familiarizing yourself with the program eligibility and requirements now, so that you can take advantage of these opportunities as soon as the final guidance is issued. In the meantime, you can already get a head start on clean energy purchases (like solar PV panels, electric vehicles, and electric vehicle chargers), whose benefits are disbursed through tax credits that you can claim on your future tax return(s).
Energy efficiency is a demand-side strategy to reduce your overall energy consumption. By investing in energy efficiency retrofits like lighting and insulation upgrades, or new, more efficient equipment, consumers can reduce the overall amount of energy they use while experiencing the same performance and level of comfort as before.
Previously, Section 25C of the Internal Revenue Code, which covers energy efficiency home improvement tax credits, had a lifetime cap of $500 per taxpayer. The Inflation Reduction Act increases the existing 10% tax credit to 30% for qualifying home energy efficiency goods, while also increasing the annual cap to $1,200 per taxpayer. To make the most use of these incentives, here are some examples of energy efficiency goods:
Electric heat pumps, which heat homes and water far more efficiently than fossil-fuel appliances or older electric resistance machines, appear to be the best bang for your buck because they have a higher cap at $2,000. In other words, with everything else the same, Consumer A who opts for a $8,000+ heat pump will save more than Consumer B who opts for a more efficient $8,000+ central air conditioning system. This can be seen in the illustrative example below.
And how does a heat pump differ from a traditional HVAC system? A heat pump can be used to replace both your traditional air conditioner and home heating system (like a boiler or furnace). Heat pumps use electricity to transfer heat from a cool space to a warm space (like an air conditioner), and from a warm space to a cold space (like a heating system). In the warmer months, a heat pump pulls heat from the inside of your home and pushes it outside. In the colder months, it does the opposite, collecting heat from the outdoor air and pulling it indoors. Because heat pumps transfer heat rather than generate it, they require less energy to operate than a traditional HVAC system (about 3-5 times more efficient than traditional fossil fuel heating systems). This increased efficiency translates into hundreds of dollars per year in savings.
Historically, heat pumps have had higher adoption rates in regions with mild winters, like Texas and Florida. However, in particularly cold climates, like the Northeast, adoption was not so great. That’s changed. There’s been dramatic performance improvements in heat pump technology in recent years, with many models now capable of delivering plenty of heat even when outdoor temperatures drop as low as -15°F (-26°C).
Assuming that heat pumps are technically feasible in your area, here’s how they offer more value than their non-electric counterparts.
Heat pumps do the job of an air conditioner and a furnace, reducing the amount of bulky equipment in and around your home.
An air conditioner and heater combined, a heat pump allows you to purchase only one unit instead of two.
Heat pumps run more efficiently than traditional furnaces. That’s good for the environment and your monthly bills.
Many heat pumps have dehumidifying and air filtering capabilities, improving your home’s air quality while heating or cooling.
Heat pumps don’t have potential gas leaks or tip-over dangers associated with other types of heaters.
Heat pumps run more quietly than a traditional furnace or AC compressor.
The challenge facing heat pumps is the higher upfront costs relative to either a traditional heater or an air conditioner unit. While the Inflation Reduction Act does help with providing tax credits to reduce the higher upfront costs, adoption of this technology still depends on each individual household’s ability to access financing and understand the system’s lifetime operational savings.
In addition to tax credits, the Inflation Reduction Act also contains income-based and performance-based rebates to further reduce the barriers of homeowners implementing energy efficiency retrofits, including purchasing a heat pump.
The High Efficiency Electric Home Rebate Act (HEEHRA) is an income-based incentive program. It offers low-income and medium-income households up to $14,000 per year in point-of-sale rebates on electrification projects, including $8,000 for heat pumps. “Point-of-sale” means the rebate amount is automatically deducted at the time of sale. Unlike tax credits, there is no need to submit any paperwork to receive the incentive.
The Home Owner Managing Energy Savings (HOMES) Rebate Program is a performance-based incentive program. It provides cash back for homeowners who can show quantifiable energy savings due to energy saving retrofits – the greater the savings, the greater the cash back. Homes with greater than 20% energy savings are eligible for a maximum rebate of $2,000, while those with greater than 35% energy savings are eligible for a maximum rebate of $4,000. Low-income households are eligible for double that amount.
Corporations and government entities can leverage the renewable electricity tax credit, and as a consumer, you can too. For all renewable energy systems that you install, you can get 30% off the total cost through tax credits (including hardware and installation and permitting fees). And, unlike energy efficiency upgrades, there is no cap on how much you spend. Eligible technologies include systems like rooftop or ground-mounted solar PV, residential wind, or geothermal that produce electricity or heating, as well as energy storage (usually batteries paired with on-site generation).
You can also access a tax credit to swap out your gasoline car for an electric vehicle (EV). For eligible taxpayers, the Inflation Reduction Act extended the tax credit for buying and installing an EV charger (capped at 30%), as well as the tax credit for purchasing an EV (capped at $7,500 for new vehicles and $4,000 for used vehicles), but dependent on an EV MSRP eligibility limit or a taxpayer annual income eligibility limit. Starting in 2024, you may be able to claim a point-of-sale discount by transferring your tax credit directly to the dealership. Download our summary document to view a list of select EV-related incentives and their eligibility requirements.
At Enel North America, we believe that we win when we all work together. We have a dedicated public policy team that is actively tracking and advocating for clean energy technologies. And we have a mission to educate and raise awareness for our employees, partners, and community members – so that they too can make the most of the available decarbonization benefits.
To the organizations and businesses that we work with, we hope that you can pass on this information to support your employees and residents’ personal decarbonization efforts.
Reach out to us today to discuss the clean energy opportunities available to you and your organization – and how our integrated suite of on-site and off-site energy solutions can meet your organization’s specific energy requirements and sustainability goals.
Visit our Inflation Reduction Act resource center to learn more about the massive opportunity that the Inflation Reduction Act is unlocking for organizations across the United States. Read articles, watch videos, and download exclusive content.