The Inflation Reduction Act – What’s in it for you?
The Inflation Reduction Act – What’s in it for you? $$$
The IRA is going to be a big deal! No, no… not the Irish Republican Army or the Individual Retirement Account you put money into hoping to retire with someday; It’s the Inflation Reduction Act of 2022! President Biden signed the massive bill into law on Sunday, August 16th, 2022.
What is the Inflation Reduction Act?
The Inflation Reduction Act (IRA) is ambiguously named as it is not yet evident how it will raise $300 billion, lowering the deficit and decreasing the current record-high inflation rate. In fact, the bill includes everything from subsidies for healthcare, initiatives to lower prescription drug costs, various tax provisions including a 15% minimum corporate tax, investments in bolstering the IRS, to a multitude of energy incentives and green building construction tax credits. Maybe the bill should have been called “The insulin-price-reduction-diet-plan, as the IRS gets fat eating the scraps from large, rich corporations that contribute infinitely more climate emissions and who generally oppose the saving the planet Act.”
Despite my feeble attempt to add levity, the IRA has garnered a flurry of media coverage about what is in the bill, how the bill will work, what the bill can do, and what the bill cannot do. The support, controversy, and speculation among individuals along party lines seem predictable and often emerge at the top of the news cycle. Our focus is to report the facts and simply state why everyone should care. This bill is the largest investment in United States history to address climate change. Over ten years, a large sum of the 370 billion will be spent on climate action, clean energy production, and reducing carbon emissions by improving the efficiency of existing and new construction homes and commercial buildings. There are many new federal tax credits and rebate incentives for property owners, contractors, and property managers. Our goal is to help make sense of these complicated incentives and assist in navigating the most economical path to improve energy efficiency and comfort. In other words, we want to answer the question, “What’s in it for you?” Check out our Podcast if you want to hear it instead of reading it!
The Inflation Reduction Act is lengthy. It is written in esoteric, legal language; most people need a law degree to understand it. Here is the most relevant information, which happens to be 9 billion in tax incentives and 4.28 billion in energy-efficient home rebates. Here are some highlights:
Tax incentives start in January 2023. Some special cases in 2022 are allowed.
All Homeowners qualify for energy-efficient windows, doors, water heaters, furnaces, heat pumps, etc.
Low to middle-income homeowners qualify for additional rebates and tax credits on energy star appliances, water heaters, insulation, heat pumps, etc.
The bill reinstates the residential solar and energy storage tax credits back to 30%!
The tax credits available for new home builders are improved and extended.
Let’s get down to the brass tacks and delve into the types of Tax Credits and Rebates available to everyone through the Inflation Reduction Act.
Energy Efficient Home Improvement Credit:
This federal tax credit is a major game changer for the 80 million homeowners reading our blog. Listen up, folks. There is now a major federal yearly tax incentive to improve and elevate your dwelling into a more energy-efficient and comfortable space. Prior to the IRA, the maximum allowable tax credit, totaled across all years, was a measly $500 dollars, but now, a homeowner can claim up to $1,200 in tax credits per year for qualified home improvements. On higher budget improvements like heat pumps, heat pump water heaters, and central boilers, a $2,000 tax write-off limit is allowed with qualifying mechanical systems.
To all of the 80 million homeowners out there – DON’T LEAVE MONEY ON THE TABLE! Talk to us! Click hereand let us help you!
Other Highlights from the Energy Efficient Home Improvement Credit
$150 credit available for home energy audits -Hey, that’s what we do!
$250 credit available for an exterior door ($500 total for all exterior doors)$600 credit available for exterior windows and skylights; central air conditioners; electric panels and related equipment; natural gas, propane or water heaters; natural gas, propane, or hot water boilers
$2,000 credit available for heat pump water heaters, heat pumps, and boilers (for this category, the $1,200 annual limit may be exceeded)
Residential Clean Energy Credit:
Most people won’t remember or were unaware that in the final hour before the residential solar federal tax credit was to expire, President Trump extended the residential investment tax credit for another two years. Whether President Trump actually knew that he was extending a renewable energy federal tax credit is certainly up for debate, but with the Inflation Reduction Act being passed by his successor, President Biden, the residential solar and energy storage tax credit is here to stay for the next ten years! Whew… a huge sigh of relief for the thousands of solar installers, project managers, and manufacturers in the US.
The combined political power of two elderly Caucasian male baby boomers single-handedly saved the expanding solar industry in the US. Who would’ve thought? Now, for the foreseeable future, homeowners, single-family builders, and multi-family developers can qualify for thousands of dollars off their residential clean energy projects. A significant win for clean residential solar and energy storage.
Other Highlights from the Residential Clean Energy Credit
Solar, Wind, and Biogas Battery storage technologies all qualify for this credit.
Credits are retroactive for projects that have already started construction! YES!!
The tax credit amount jumps from 22% to 30% until 2032. In 2033, it will drop to 26% and will drop again to 22% in 2034.
High-Efficiency Electric Home Rebates Program
Qualifying low to moderate-income households also see some specific and much-needed opportunities to reduce their utility burden. Low to middle-income households are often less energy efficient, meaning that despite typically living in smaller spaces, their monthly energy expenses are higher than average. The 4.28 billion dollars allocated in rebates for low to middle-income households will significantly reduce monthly expenses. To qualify for a High-Efficiency rebate, your family's total annual income must be less than 150% of the median income where you live. Projects can include energy-efficient appliances and non-appliance upgrades to your homes. Click here to find out what your area's Annual Median Income (AMI) is.
Highlights from the High-Efficiency Electric Home Rebates Program:
Qualifying homeowners could get appliance rebates as high as:
· $840 for a stove, cooktop, range, oven, or heat pump clothes dryer.
· $1,750 for a heat pump water heater.
· $8,000 for a heat pump for space heating or cooling.
Rebates for non-appliance upgrades are also available up to the following amounts:
· $1,600 for insulation, air sealing, and ventilation
· $2,500 for electric wiring
· $4,000 for an electric load center (Main Breaker Panel)
Rebate Limits:
There are limits on the rebate amounts certain families can receive. For example, a rebate cannot not exceed 50% of the cost of a qualified project if the family's annual income is between 80% and 150% of the median area income. Each qualifying family is also limited to $14,000 in total rebates under the program. You should contact a tax professional to calculate the maximum amount of rebates you can qualify for and the steps to collect those rebates.
45L Tax Credit: Contractors and Builders
New construction home builders can also win big with the new credits allocated and extended in the IRA. The 45L tax credit provides a $2,500 credit for energy-efficient single-family and manufactured new homes meeting ENERGY STAR Residential New Construction Program requirements.
Highlights from the Residential Clean Energy Credit
Single-family homes must meet the Energy Star Single-Family New Homes Program Version 3.1 for homes acquired before January 1, 2025.
After January 1, 2025, Energy Star Version 3.2
Manufactured homes must meet the most recent Energy Star Manufactured Home National Program requirements as in effect on January 1, 2023.
Energy Zero Ready Homes Tax Incentive:
The IRA provides a higher tier credit of $5,000 for eligible single-family and manufactured new homes certified as Zero Energy Ready under the Department of Energy’s Zero Energy Ready Home Program. These homes need to be built to a higher standard and adhere to specific third-party verification requirements. But builders, heed these words: if you connect with an experienced and dedicated ZERO Energy Ready Home verifier, then you will have the guidance to build ZERO Energy Ready homes with little to no additional construction cost. Your homes will be built at a higher standard, and your crews and subs will know how to replicate the process so you can consistently qualify for the $5,000 tax credit.
Whoa! That is a ton of information on the Inflation Reduction Act, but there is even more! This is your call to action – reach out to NW Energy Collaborative for more information. Please share your comments, thoughts, and questions.
