Here’s How To Get Paid To Upgrade Your Home
Need a new water heater or thinking about solar? You can get money for that. Here's how to take advantage of the Inflation Reduction Act incentives.
The race is on to decarbonize America. Since homes generate about 20% of our country’s greenhouse gas emissions, the federal government is trying to help homeowners go green through the Inflation Reduction Act (IRA).
Most of the act’s provisions took effect in 2023, offering rebates and tax incentives for a range of homeowner upgrades, including heat pumps, appliances and renewable energy installation. The act also empowered state governments to incentivize greener homes. Many of those are still being determined and will roll out over time.
With so much going on, it may be difficult to figure out what you might be eligible to receive. We’re here to help.
Four Incentive Programs
There are four parts of the IRA homeowners should be aware of. Two are tax credits available now for those who can afford to pay for something up front or finance it, then reap tax benefits over time. The others are state-administered rebate programs targeted for lower income households that have yet to take effect.
It could take a year or two for some of the latter to kick in, depending on how quickly your state sets them up. Each state will handle these differently, so check with your state government to see if they have a notification list you can join.
The programs include:
- Energy Efficient Home Improvement Credit, aka 25C: This covers up to 30% of project costs, with a $3,200 annual maximum. Out of that, there’s a $1,200 limit for any combination of home envelope improvements (windows, doors, skylights, insulation, electrical), plus furnaces, boilers and central air conditioners. “The beauty of the 25C tax credit is that you can take advantage of the maximum amount each year for 10 years, so households can plan for multiple energy efficient upgrades,” says Sara Baldwin, senior director of electrification policy at Energy Innovation.
- Residential Clean Energy Tax Credits, aka 25D: This covers 30% of the costs of designated renewable and energy storage technologies over the next ten years. “You don’t have to do it all at once,” Baldwin says. “You have a decade to retrofit your home and make it cleaner, healthier, lower carbon, and more economical.”
- Home Electrification Rebate Program: When it takes effect, this will cover 50% to 100% of the costs of various efficient electric appliances (heat pumps, etc.) with a $14,000 per household max. It’s limited to low and moderate-income households (LMI) who make less than 150% of the median income where they live.
- Home Efficiency Rebate Program: Also not yet available, it will offer $2,000 to $8,000 per dwelling unit, based on the percentage of energy saved. It’s open to people at any income level, but LMI households will receive larger rebates. “Rather than an incentive by technology type, the incentive is based on measures that result in measured/modeled home energy savings,” says Baldwin.
“It’s important to note that some of the credits and rebates can have even greater savings when the work is done simultaneously,” says Mallory Micetich, a home expert at Angi. “I recommend utilizing resources like Rewiring America to help calculate your household savings and understanding which projects will give you the best money back.”
Air Source Heat Pumps for HVAC/AC
Electric heat pumps can qualify for 30% of costs, up to $2,000, through 25C. The total cost of a heat pump system can range from about $1,500 to more than $10,000.
According to Angi, the average U.S. homeowner spends around $6,000 to install a heat pump. If yours costs $6,000, than means you’ll save $1,800 and still have another $1,200 in incentives left over for another project in the same year, like a heat-pump water heater. Through the Home Electrification Rebate Program, if you qualify as an LMI household, you can get a rebate of up to $8,000.
In addition, non heat-pump HVAC that meets or exceeds the highest efficiency tier established by the Consortium for Energy Efficiency (CEE) is also eligible for the 30% tax credit, up to $600.
Geothermal Heat Pumps
Through 25D you can get a 30% tax credit for the equipment and installation of a geothermal heat pump. According to Angi, the average cost for one is around $14,000, which means you’d save $4,200. There’s no cap on this incentive.
Electric Cooktops and Stoves, Including Induction
Through the Home Electrification Rebate Program, if you qualify for LMI, you can get a rebate up to $840. Several major brands offer decent stove models for about $1,200, which means the whole range would cost you around $360 in total.
Solar Panels and Solar Home Battery Storage Units
Through 25D you can get a 30% tax credit for the equipment and installation of solar panels and solar home battery storage units. According to Angi, the average cost for solar panels is around $26,000, and the average for batteries is around $10,000. If you installed both, you’d save almost $11,000. There is no cap on this incentive.
Heat Pump Clothes Dryers
Through the Home Electrification Rebate Program, if you qualify as an LMI household you can get a rebate up to $840 on heat pump clothes dryers. These start at around $1,000, which means the whole dryer would cost you $140. This falls under the $14,000 maximum per household, so you can use it and still qualify for other appliance upgrades.
Heat Pump and Other Water Heaters
There are two ways to save with heat pump water heaters. Through 25C, you can get a 30% tax credit up to $2,000, which would make a $2,000 water heater cost just $1,400. Or through the Home Electrification Rebate Program, if you qualify as an LMI household you can have up to $1,750 covered via rebates.
If you have the tax appetite, you can take advantage of the rebate and the incentive. Natural gas, propane and oil water heaters also qualify for 25C, as long as they meet or exceed the highest efficiency tier of the Consortium for Energy Efficiency (CEE). Those are eligible for the 30% tax credit up to $600.
Through 25D you can get a 30% tax credit for the equipment and installation of a wind turbine and associated storage batteries. A wind turbine system can start at around $15,000, which means you would save around $4,500 on a basic setup. There is no cap on this incentive.
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Exterior Windows, Skylights and Doors
Through 25C, you can get a 30% tax credit, up to $600 annually on exterior windows and skylights that meet Energy Star’s most efficient certification requirements.
For doors, you can get that 30% tax credit up to $250 per door, for a maximum of $500. That means if you buy a $500 door you’ll save $150. If you buy two $800 doors, you’ll save $480. There’s a cap of $1,200 per year for all energy-efficiency home improvements.
Insulation and Air Sealing
Through 25C, you can get a 30% tax credit, up to $1,200 per year on insulation and air sealing costs that make your home more energy efficient. Then, through the Home Electrification Rebate Program, if you qualify as an LMI household, you also get up to $1,600 more for these, including ventilation projects.
There’s a cap of $1,200 per year for all energy-efficiency home improvements.
Home Energy Audit
Through 25C, you can get a 30% tax credit to cover 30% of a home energy audit up to $150. “Home energy audits are one of the best ways to decide which projects you should prioritize, and I always recommend this as a starting point for homeowners,” says Micetich.
Through the Home Electrification Rebate Program, if you qualify as an LMI household you can get a rebate for rewiring part or all of your house. That’s important, since you may need to accommodate the extra power demand from electric appliances and heating systems.
The rebate varies based on household income, with the max being $2,500. Through 25D you can also get a 30% tax credit for installation costs. “Beyond safety, this rebate is a great motivator for homeowners to update their electrical system,” says Micetich.
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Through the Home Electrification Rebate Program, if you qualify as an LMI household you can get a rebate up to $4,000 for a new electrical panel. For those with higher annual incomes, through 25C you can still get a 30% tax credit, up to $600 per year. According to Angi, the average cost to replace one is around $1,200.
Through the Home Electrification Rebate Program, if you qualify as an LMI household your contractor will be eligible for a rebate of up to $500. Also, under the Home Efficiency Rebate Program, contractors can get an additional $200 per installation to serve homes in designated disadvantaged communities.
Through an additional incentive, 30D, you can get a $7,500 tax credit for qualifying electric and hybrid plug-in passenger vehicles. They must be assembled in North America and meet certain eligibility requirements regarding battery components and critical minerals.
You are only eligible for this if you make less than $150,000 per year (individual) or $300,000 (joint filers), and you must buy a car that costs less than $55,000 ($80,000 for trucks and SUVs).
There is also an incentive for installing EV chargers. It’s 30% up to $1,000 if you live in a qualifying location — a non-urban area; a census tract where the poverty rate is at least 20%; or a metropolitan and non-metropolitan area census tract where the median family income is less than 80% of the state medium family income level.
What Doesn’t Qualify Under the IRA?
Some items don’t qualify under 25C, 25D or the Home Electrification Rebate Program. However, if you retrofit your home with them and they make it more energy efficient overall, it may pay out under the Home Efficiency Rebate Program, once that’s available in your state.
Some of those energy savers include:
- Cool roofs;
- Energy-efficient dishwashers;
- Shade trees and drought-resistant plants;
- Radiant floor heating;
- Energy-efficient refrigerators and freezers;
- Smart thermostats;
- Whole house fans.
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The Fine Print
In case you thought this was all too simple — just kidding, we know it’s not — here are a few more things to keep in mind:
- The Electrification Rebate and Efficiency Rebate program incentives cannot be combined to cover the same equipment costs, but LMI customers may take advantage of both rebates for different equipment.
- The percentage of rebates with the Home Electrification Rebate Program varies based on income: up to 100% of costs, including installation, for low-income (defined as <80% of AMI) or up to 50% of costs for moderate income (80% to 150% AMI).
- Timelines: For the Electrification Rebate and Efficiency Rebate programs, the Department of Energy will issue guidance to states by summer 2023. After that, states can submit their plans back to the DOE by August 2024. Once approved, the DOE will release money to the states to implement those programs.
- In some cases, state rebates are considered taxable income. Be sure to consult a tax accounting professional when you file your taxes if you receive any rebates, whether via IRA, your state or utility.