Wearing one ugly Christmas sweater for a party can be fun, but if soaring energy costs have you wearing all your sweaters at once to avoid raising your thermostat, you may feel less than jolly. Fortunately, a new federal program is offering homeowners incentives to pay for home energy improvements. Passed in August 2022, the Inflation Reduction Act (IRA) provides tax credits and rebates to American consumers for eco-friendly upgrades and may help households reduce their electricity costs by as much as $170 to $220 a year.
Here are four key IRA provisions that can help you pay to increase your home’s energy efficiency. For more information on how each program can benefit you, visit the White House’s site dedicated to clean energy.
1. Energy Efficient Home Improvement Tax Credit
Beginning in 2023, you can claim a tax credit of up to 30% of the costs of eligible energy improvements. The amount you can claim varies by the type of improvement and is subject to cap of $1,200 per year, or $2,000 for electric heat pumps. Because of the annual limits, it may make sense to spread out your improvements over multiple years. For example, you could use the credit toward the purchase of an air conditioner one year, and claim it again the next year to help pay for new windows and doors.
Types of improvements include:
- Home energy audits
- Energy-efficient exterior doors, windows, and skylights
- Certain types of central air conditioners, water heaters, furnaces, and appliances
- Heat pumps
- Electrical panel upgrades (in some cases)
2. Residential Clean Energy Tax Credit
Formerly known as the Residential Energy Efficient Property Credit, this provision allows a 30% credit for the cost of installing certain systems that use solar, wind, geothermal, or biomass fuel to produce electricity for your home. It can also be used toward home battery packs. This percentage drops to 26% in 2033 and expires after 2034.
3. Alternative Fuel Vehicle Refueling Property Tax Credit
If you have an electric vehicle (EV), you can claim a credit of 30% of the cost to install recharging equipment, with a limit of $1,000. And if you don’t have an EV, check out related tax credits of up to $7,500 for a new EV and $4,000 for a used one, subject to income and vehicle price limits.
4. High-Efficiency Electric Home Rebates
Down the road, low-and middle-income Americans (defined as families earning less than 150% of an area’s median income) will have access to another clean energy incentive in the form of rebates on certain home improvements. Unlike federal income tax credits, these rebates will be distributed out of $4.5 billion allocated to states, with each state establishing its own programs. Availability (and amounts) of rebates will be determined by your state, and each qualifying family is limited to $14,000 in total rebates.
Examples include rebates up to:
- $840 for qualifying models of appliances like stoves, cooktops, and heat pump clothes dryers
- $1,600 for insulation, air sealing, and ventilation
- $1,750 for a heat pump water heater
- $2,500 for electric wiring and $4,000 for an electric panel upgrade (if needed to support energy-efficient improvements)
- $8,000 for a heat pump for home heating/cooling
And remember … in addition to these incentives and the savings on your utility bills, your city or state may offer additional rebates or tax breaks for energy improvements. Add that up, and you have plenty of ways to save money while going green!
Thanks for taking a few minutes to read our blog. Not only do we hope you found it educational, we also hope it saves you money! Please feel free to reach out to us at 515-252-7107 if you have any questions regarding this topic or other topics regarding home financing or home ownership. If we cannot answer your question, we are happy to direct you to a trustworthy resource who can. Feel free to visit Midwest Family Lending for more helpful tips regarding home financing. And while you are at it, we would LOVE for you to visit MFLCares to learn more about some of the incredible charities we support. These organizations and people are truly making a difference in our communities.
This article is informational purposes only. Note that exceptions, limitations, and restrictions may apply to any of these scenarios. Consult your tax advisor for more information. We are not endorsed by, sponsored by, or acting on behalf or at the direction of any government entity or program.