Energy Efficiency Rebates and Tax Credits 2023: New Incentives for Home Electrification | Solar.com

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Energy Efficiency Rebates and Tax Credits 2023: New Incentives for Home Electrification

From the windows, to the walls: The recently signed Inflation Reduction Act is creating energy efficiency rebates and tax credits for all kinds of home electrification upgrades.

We’re talking tens of thousands of dollars per qualified household for appliances like heat pumps, stoves, and dryers, and upgrades like new windows, insulation, and electrical panels.

When these new incentives take effect on January 1, 2023, there’s going to be a lot on the table. So we’re taking a project-by-project approach to show you which energy efficiency rebates and tax credits will be available to you, and how to claim them.

First, let’s look at the two types of energy efficiency incentives: rebates and tax credits.

Energy Efficiency and Electrification Rebates for 2023

The High-Efficiency Electric Homes and Rebates Act (HEEHRA) allocates $4.5 billion dollars to the states to create point-of-sale rebates for home electrification projects for low- and moderate-income households. Programs specifics are still being determined and will vary from state to state.

Point-of-sale means the rebate is transferred to the customer at the time of purchase, effectively discounting the price of the appliance or upgrade. Qualifying households can use up to $14,000 in HEEHRA rebates for the following appliances and energy efficiency upgrades.

HEEHRA rebate amounts for appliances

Appliances Maximum rebate amount
Heat pump water heater $1,750
Heat pump for space heating and cooling $8,000
Electric stove, cooktop, range, oven $840
Heat pump clothes dryer $840

HEEHRA rebate amounts for non-appliance upgrades

Non-appliance upgrades Maximum rebate amount
Upgraded electrical panel $4,000
Insulation, air sealing, ventilation $1,600
Electric wiring $2,500

These energy efficiency and electrification rebates take effect on January 1, 2023 and run through September 30, 2031.

Who qualifies for energy efficiency rebates?

Not all households will qualify for HEEHRA rebates. The energy efficiency and electrification rebates in the Inflation Reduction Act are reserved for households making less than 150% of the area median income (AMI) as defined by the Department of Urban Housing and Development (HUD).

Households making less than 80% of area median income can use the rebates to cover 100% of the cost of equipment and installation for energy efficient appliances and home upgrades.

Households making between 80-150% can use the rebates to cover 50% of the equipment and installation costs.

Use this calculator from Rewiring America to find out if you will qualify for HEEHRA rebates.

So, for example, a 50 gallon Rheem Pro Prestige heat pump water heater costs $1,500 on the Electrum marketplace. Let’s say installation is another $750 for a grand total of $2,250.

  • If your household income is less than 80% of AMI, you could use the entire $1,750 heat pump water heater rebate to bring the purchase price down to $500.
  • If your household income is between 80-150% AMI, you could only use $1,125 of the rebate to cover the maximum 50% of the all-in cost, and the other $1,125 comes out of your pocket.

Either way, that’s a great deal for a brand new heat pump water heater that can save you hundreds of dollars per year in energy costs and reduce your carbon emissions.

If you make more than 150% AMI, then you won’t qualify for HEEHRA rebates. Not to worry, there are still energy efficiency incentives in the Inflation Reduction Act for you!

Energy Efficiency Tax Credits for 2023

If you don’t qualify for energy efficiency rebates, there are tax credits in the Inflation Reduction Act that can reduce the cost of home electrification projects.

Unlike a point-of-sale rebate, a tax credit does not reduce the purchase price of the project. Rather, it’s claimed when you file your taxes and can increase your refund or reduce the amount of tax you owe.

Beginning in 2023, the Energy Efficient Home Improvement Credit will be worth 30% of the total cost of eligible projects up to $1,200 per year (or $2,000 per year for heat pump water heaters and heat pump space heaters).

That means you will be able to spread out your home electrification projects to claim the tax credit in multiple years.

The Energy Efficient Home Improvement Credit applies to:

Energy efficiency upgrade Annual tax credit limit
Home energy audits $150
Exterior doors $250 for one door; $500 for all doors
Exterior windows and skylights $600
Central air conditioners $600
Electrical panels and related equipment $600
Natural gas, propane, oil water heaters and furnaces $600
Heat pump water heaters $2,000
Heat pump space heaters $2,000
Biomass stoves and boilers $2,000

The Energy Efficient Home Improvement Credit is basically a reboot of the Nonbusiness Energy Property Credit that expired in 2021 and was worth only 10% of the project costs..

The new credit will be in effect from January 1, 2023 to December 31, 2032.

Can You Combine Energy Efficiency Tax Credits and Rebates?

HEEHRA rebates and Energy Efficient Home Improvement tax credits are two separate incentives created by the Inflation Reduction Act — so can they be combined to maximize savings?

“Technically, you can use both,” said Sam Calisch, Head of Special Projects at Rewiring America, an organization involved with drafting theses programs. “But it’s important to understand that there’s very, very few households that actually fall into that little overlap.”

The HEEHRA program was designed to help low- and moderate-income households, so there’s an upper cap on the income it’s based on. According to Calisch, these households tend not to have enough tax liability to claim the tax credit.

“Some of the previous programs, like the previous EV tax credit, generally went to wealthier households — and that’s not equitable,” Calisch said. “So it’s really important to have both of these programs because things like HEEHRA serve low- and moderate-income households, and they have really generous incentives. Their amounts are higher and they’re upfront, so they’re a direct discount off the price.”

Energy Efficiency Tax Credits and Rebates By Project

Okay, now that we have the policy mumbo-jumbo out of the way, let’s take a project-by-project approach to what you can save one the new energy efficiency tax credits and rebates take effect in 2023.

It’s important to note that these are only the federal incentives created by the Inflation Reduction Act. There may be additional state and local incentives in your area.

Let’s start with the biggest savings potential.

Heat pump space heating and cooling incentives

Beginning in 2023, qualified Americans will be able to save up to $8,000 on a heat pump for space heating and cooling. For some, that may cover 100% of the cost of a major appliance that will also save them hundreds of dollars a year in energy costs.

  • Households with income less than 80% of AMI: $8,000 rebate up to 100% of equipment and installation costs
  • Households with income between 80-150% AMI: $8,000 rebate up to 50% of equipment and installation costs
  • Households with income at or above 150% AMI: 30% tax credit worth up to $2,000 per year

The tax credit also applies to biomass stoves and boilers and is an exception to the $1,200 yearly limit.

Heat pump water heater incentives

Water heating is another area of major energy savings potential. The IRA creates substantial incentives that put heat pump water heaters in reach for Americans at all income levels.

  • Households with income less than 80% of AMI: $1,750 rebate up to 100% of equipment and installation costs
  • Households with income between 80-150% AMI: $1,750 rebate up to 50% of equipment and installation costs
  • Households with income at or above 150% AMI: 30% tax credit worth up to $2,000 per year

The tax credit also applies to biomass stoves and boilers and is an exception to the $1,200 yearly limit.

Get multiple quotes on heat pump water heaters here.

Electrical panel upgrade incentives

For many households, the first step toward electrification and energy savings is upgrading the electrical panel or breaker box. You bet there are incentives for this upgrade.

  • Households with income less than 80% of AMI: $4,000 rebate up to 100% of equipment and installation costs
  • Households with income between 80-150% AMI: $4,000 rebate up to 50% of equipment and installation costs
  • Households with income at or above 150% AMI: 30% tax credit worth up to $600 per year

Electrical panel upgrades can also be included in the 30% federal solar tax credit.

Electrical wiring incentives

In some houses, new electrical wiring may be required before making additional energy efficiency upgrades. Beginning in 2023, Uncle Sam will help you with that.

  • Households with income less than 80% of AMI: $2,500 rebate up to 100% of equipment and installation costs
  • Households with income between 80-150% AMI: $2,500 rebate up to 50% of equipment and installation costs
  • Households with income at or above 150% AMI: Electrical wiring may be included in the 30% tax credit worth up to $600 per year for electrical panel upgrades. Consult a licensed tax consultant with questions about tax credits.

Insulation, air sealing, and ventilation incentives

Insulation, sealing, and ventilation are part of the home envelope – the structures that make a home airtight. A secure envelope can lead to major energy savings over the long term.

  • Households with income less than 80% of AMI: $1,600 rebate up to 100% of equipment and installation costs
  • Households with income between 80-150% AMI: $1,600 rebate up to 50% of equipment and installation costs
  • Households with income at or above 150% AMI: N/A

Exterior windows and doors incentives

Energy savings can literally fly out the window if your windows and doors aren’t air tight. The Energy Efficient Home Improvement Credit can help you upgrade windows and doors.

  • Households with income less than 80% of AMI: 30% tax credit worth up to $600 per year for exterior windows and skylights, $250 per year for one exterior door, and $500 per year for all exterior doors
  • Households with income between 80-150% AMI: 30% tax credit worth up to $600 per year for exterior windows and skylights, $250 per year for one exterior door, and $500 per year for all exterior doors
  • Households with income at or above 150% AMI: 30% tax credit worth up to $600 per year for exterior windows and skylights, $250 per year for one exterior door, and $500 per year for all exterior doors

Electric stove, cooktop, range, and oven incentives

According to reporting by NPR, gas stoves emit nitrogen dioxide, carbon monoxide, and formaldehyde into the air, which can trigger breathing problems, especially in young children.

Luckily, there are incentives for switching to electric stoves, which are cleaner and more cost effective over time.

  • Households with income less than 80% of AMI: $840 rebate up to 100% of equipment and installation costs
  • Households with income between 80-150% AMI: $840 rebate up to 50% of equipment and installation costs
  • Households with income at or above 150% AMI: N/A

Heat pump clothes dryer incentives

Heat pump clothes dryers are more efficient than conventional dryers and create water as a byproduct instead of exhaust. That means no dryer exhaust smell, no hole in your house, and no wrestling the machine from the wall to clean the exhaust pipe.

In 2023, they’ll come at a significant discount for qualified households.

  • Households with income less than 80% of AMI: $840 rebate up to 100% of equipment and installation costs
  • Households with income between 80-150% AMI: $840 rebate up to 50% of equipment and installation costs
  • Households with income at or above 150% AMI: N/A

Energy efficiency central air conditioners, furnaces, and water boilers

Breaking from the electrification theme, the IRA still lays out incentives for energy efficient appliances like central air conditioners, furnaces, and water boilers that run on fossil fuels.

  • Households with income less than 80% of AMI: 30% tax credit up to $600 per year for conditioners and natural gas, propane, and oil furnaces and water boilers
  • Households with income between 80-150% AMI: 30% tax credit up to $600 per year for conditioners and natural gas, propane, and oil furnaces and water boilers
  • Households with income at or above 150% AMI: 30% tax credit up to $600 per year for conditioners and natural gas, propane, and oil furnaces and water boilers

Home energy audit incentives

Maybe you don’t know where to start with upgrading your home’s energy efficiency. That’s ok, you use a home energy audit to figure out the best bang-for-your-buck.

  • Households with income less than 80% of AMI: 30% tax credit up to $150 per year
  • Households with income between 80-150% AMI: 30% tax credit up to $150 per year
  • Households with income at or above 150% AMI: 30% tax credit up to $150 per year

A Decade of Energy Efficiency Tax Credits and Rebates Ahead

With the IRA officially law, homeowners of all income levels will have access to new and improved energy efficiency tax credits and rebates beginning in 2023.

Although these incentives will be around for the next decade, energy efficiency is about long term savings. The sooner you invest in home electrification, the more time you have to compile savings and reduce your carbon footprint.

Of course, these energy efficiency upgrades become even cleaner and cost effective when paired with home solar.

Get started with multiple quotes from our network of certified installers.

Energy Efficiency Rebate and Tax Credit Frequently Asked Questions

Are there any Federal rebates for heat pump water heaters?

Beginning January 1, 2023, there will be a federal tax credit and a rebate for heat pump water waters. The point-of-sale rebate can be used to reduce the purchase price of a heat pump water heater by up to $1,750 for households with income less than 150% of the area median income (defined by HUD). Households with incomes than 80% of AMI can use the rebate to cover 100% of the cost of equipment and installation. Households with incomes between 80-150% AMI can use the rebate to cover 50% of the cost of equipment and installation.

The Energy Efficient Home Improvement Credit is worth 30% of the total cost of a heat pump water heater up to $2,000. This credit can be used to reduce your tax liability. Consult a licensed tax professional for advice regarding using tax credits.

Can you get a tax credit for energy efficient windows?

Beginning January 1, 2023, there will be a federal tax credit for exterior windows and doors. The Energy Efficient Home Improvement Credit is worth 30% of the total cost of the project, up to $600 for exterior windows and skylights, $250 for a single exterior door, and $500 for all exterior doors.

There may also be state and local incentives for windows and doors in your area.

How do I apply for energy efficiency and electrification rebates?

HEEHRA rebate programs will be administered by the states and are still awaiting guidance from the Department of Energy (DOE). Program guidelines may vary from state to state, however, included in the bill text of the Inflation Reduction Act is language that states that households that already qualify other income-specific programs (SNAP, Medicaid, weatherization assistance) will automatically qualify for HEEHRA.

Check back for updates on how to apply for HEEHRA rebates.

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How the Inflation Reduction Act of 2022 Can Lower Your Energy Bills

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