How New US Tax Credits and Rebates Will Work for Clean Energy Home Upgrades


US President Joe Biden signed the big climate bill – the Inflation Reduction Act (IRA) – into law earlier this week. Electrek spoke with Dan Gayer, JD, CPA, senior tax practice manager at Baker Newman Noyes, about how homeowners can claim tax credits and rebates as they strive to achieve the energy efficiency and reduce their energy bills.

Credit for improving the energy efficiency of homes

Changes to the former Non-Commercial Energy Asset Credit, now renamed the Home Energy Efficiency Improvement Credit, will come into effect on January 1, 2023.

The old credit was worth 10% of the cost of installing insulation, windows, doors, roofing and other energy-efficient upgrades. The old lifetime limit of $500 still applies for the remainder of 2022.

Starting in 2023, an annual tax credit limit of $1,200 will replace the old lifetime limit of $500. The tax credit will be equal to 30% of the costs of all eligible home improvements made during the year. It has also been expanded to cover items such as biomass stoves and boilers, electrical panels and home energy audits.

From 2023, the annual limits for specific types of allowable changes have been improved. For example, it’s $250 for an exterior door or $500 for all exterior doors; $600 for exterior windows and skylights; and $2,000 for heat pumps and heat pump water heaters for homeowners not eligible for rebate due to higher family income – see below. (This last $2,000 is the exception to the $1,200 annual limit.)

Residential Clean Energy Credit

The Residential Clean Energy Credit, which is now extended to 2034, was previously called the Residential Energy Efficient Real Estate Credit.

The amount of the credit for the installation of clean domestic energies such as solar, wind or geothermal energy has increased from 26% to 30% from 2022 to 2032. It then drops to 26% for 2033 and 22% for 2034.

Gayer says of the household solar tax credit schedule:

With respect to solar credits, residential credits and business investment tax credits are back at 30% in effect for solar equipment commissioned at any time after January 1, 2022.

Gayer went on to explain how homeowners can get tax credits for the Home Energy Efficiency Improvement Credit and the Residential Clean Energy Credit under the IRA:

The mechanism for claiming this credit appears to be the same in 2022 and 2023 as in the past – the credit is claimed on the buyer’s personal income tax return. The buyer does not need to submit any specific documentation with the tax return, but should keep the documentation in their tax records so they can prove they purchased a qualifying property in the event of an IRS audit.

Sellers should be able to provide buyers with this type of documentation. In 2024 and beyond, manufacturers must create a specific product identification number for each qualifying product they sell, and buyers must include this number on their tax returns to claim the credit.

High Efficiency Electric Home Rebate Program

The IRA’s $4.28 billion High Efficiency Electric Homes Rebate Scheme will provide an initial rebate of up to $8,000 for the installation of heat pumps capable of both heating and cooling homes . It also offers a rebate of up to $1,750 for heat pump water heaters.

There’s also a rebate of up to $840 to offset the cost of a heat pump dryer or electric range, including induction ranges.

If a home needs an electrical panel upgrade to support new electrical appliances, there’s up to $4,000 in rebates to help. There’s also a rebate of up to $2,500 for electrical wiring upgrades.

And for one of the cheapest and fastest ways to make a home more energy-efficient – ​​insulation and sealing – you get a rebate of up to $1,600.

Owners will be able to collect a maximum of $14,000 in total in rebates. Household income cannot exceed 150% of the area median income as calculated by the Department of Housing and Urban Development to qualify. (Here’s a regional median income finder from Fannie Mae to see what your limit is.) According to the bill itself, rebates begin after December 31, 2022.

Gayer explained in detail how the discounts will work:

The Inflation Reduction Act does not provide specifics on how this reimbursement will be administered – the details here are left to the Treasury Department to issue general guidelines and then make grants to state governments, which are responsible to implement the program and give the discounts.

The intent here is to provide rebates to qualified buyers at the point of sale, so this will be a direct rebate on the purchase price rather than a credit claimed on a tax return.

Given all that remains to be done at the federal and state levels to write more detailed rules and put in place the necessary administrative procedures, it seems unlikely that this reimbursement program will be operational before 2023, and the exact details of the program may be different in each state.

The rebate program will continue until September 30, 2031 and the credit for home energy efficiency improvements will continue until 2032.

Photo: “Three pigeons on a roof” by Dunnock_D is licensed under CC BY-NC 2.0

Read more: If America’s Big Climate Bill Passes, Here’s How It Could Boost Solar and Wind Power

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