Inflation Reduction Act Explained: Save Big on HVAC Systems

The 2022 Inflation Reduction Act (IRA), set to be in effect from 2023 to 2031, will invest new federal spending into clean energy and carbon reduction programs. This means that households (including you!) across the country can benefit from significant up-front home energy rebates and tax credits that will save you money on energy-efficient appliances and upgrades.

However, we know that understanding new legislation can be confusing. We're here to summarize the Inflation Reduction Act and help you understand how you can benefit from these new and exciting changes.

Upgrading to energy-efficient appliances can save you hundreds annually on energy costs, but the upfront investment can make it difficult for many to upgrade. As of 2023, the IRA will offer households rebates and tax credits to purchase and maintain new ENERGY STAR-rated electric appliances, including those found in Mitsubishi's comprehensive line (currently, the law does not include Daikin Fit, but this could change in 2023/2024). In other words, you'll be able to upgrade to top-of-the-line electric appliances at a more affordable price!

These rebates and tax credits will be available for newly constructed and existing homes that need to replace a non-electric appliance (currently, replacements of electric resistance heating systems do not qualify) and for first-time appliance purchases. Now, let's delve deeper into the different savings options and understand where and what you qualify for.

Rebates for energy efficient installs, repairs, and upgrades

The Inflation Reduction Act will lower the upfront costs of replacing fossil fuel furnaces, boilers, water heaters, and stoves with new ENERGY STAR-rated electric alternatives. The rebates include:

• Heat Pumps (Available mid-2023 to 2031)
  • Income levels below 80% of Area Median Income will receive 100% of the cost up to $8,000.
  • Income levels between 80-150% of Area Median Income will receive 50% of the cost up to $8,000.
• Heat Pump Water Heater (Available mid-2023 to 2031)
  • Income levels below 80% of Area Median Income will receive 100% of the cost up to $1,750.
  • Income levels between 80-150% of Area Median Income will receive 50% of the cost up to $1,750.
• Electric Upgrades (Available mid-2023 to 2031)
  Must be related to a heat pump to qualify
  • Panel Upgrade:
    • Income levels below 80% of Area Median Income will receive 100% of the cost up to $4,000.
    • Income levels between 80-150% of Area Median Income will receive 50% of the cost up to $4,000.
  • Wiring Upgrade:
    • Income levels below 80% of Area Median Income will receive 100% of the cost up to $2,500.
    • Income levels between 80-150% of Area Median Income will receive 50% of the cost up to $2,500.

Rebates for Landlords of Multi-Family Homes

Rebates are also available for landlords of multi-family houses with 50% of residents who have a household income of 150% or less of the Area Median Income. Qualifying homes will receive up to $8000 for a heat pump for space heating and cooling, $1,750 for a heat pump water heater, $840 for electric stoves, $4,000 for electrical panel upgrades, and more with a maximum of $14,000 in credits.

How much will you save?

Savings is dependent on overall household income and the size of your family. To qualify, your combined household income must be low to moderate. Low income level is defined as below 80% of your Area Median Income, and moderate income is between 80 and 150% of your Area Median Income. To better understand how much savings you may be eligible for, check out the Rewiring America IRA Calculator. This calculator will estimate how much money you can save and provides a list of the incentives you may benefit from.

If you're not eligible for rebates, there are other ways to save! For homeowners that do not meet the required household income, the IRA offers a tax credit of up to $2,000 on new heat pump installations and tax credits for up to $1,200 a year for the installation of an induction stove or new windows and doors. Keep reading to learn more!

Tax credits for energy efficient equipment and upgrades

The Inflation Reduction Act tax credits are available to all incomes and can be combined with rebates. Simply put, it's savings every one can benefit from, regardless of household income! Between 2023 and 2031, you can claim 30% of the cost of qualified electrification projects as tax credits on your annual taxes. Here’s what’s included:

• Heat Pumps (Available 2023 through 2031)
  • All income levels will receive 30% of the cost up to $2,000.
• Heat Pump Water Heater (Available 2023 to 2031)
  • All income levels will receive 30% of the cost up to $2,000.
• Geothermal Heat Pumps (Available now to 2031)
  • All income levels will receive 30% of the cost of install (no limit).
• Electric Upgrades (Available 2023 to 2031)
  Must be related to a heat pump to qualify
  • All income levels will receive 30% of the cost up to $600 for panel upgrades.

How to receive your rebate or tax credit

Rebates

All rebates are expected to become available towards the middle of 2023 and each state will be rolling out its incentive programs individually. As we learn more about how Pennsylvania and New Jersey will move forward, we will be updating this article and sending out an email about how you can claim your rebate. These details may come later this year. In the meantime, if you'd like to talk through your options, feel free to give us a call! It's not too early to begin planning for the future.

Tax Credits

First, keep in mind that you can begin to receive tax credits on January 1, 2023. In the year following your project, you can claim 30% of your project costs (up to the maximum amount) when you file your 2023 taxes.

How does it work?
Depending on how much you owe, your tax liability will drop, or you will receive a refund. For example, if you owe $2,000 in federal taxes but are eligible for a $2,000 tax credit from your new heat pump install, your liability will become zero. Or, if you owe $1,000 in federal taxes but are eligible for a $2,000 tax credit, you will receive a refund of $1,000.

Save long-term on your utility bills

Initial cost savings on energy-efficient systems and upgrades aren’t the only exciting aspect of The Inflation Reduction Act. It ensures that individuals and families across the country experience long-term cost savings and comfort.

ENERGY STAR-rated appliances result in hundreds of dollars in annual savings each year due to their efficiency, allowing people to spend this money when and where they need it most. Let’s take a look at the different systems and the estimated associated savings:

If you’re interested in delving into what it takes for an HVAC to become a certified ENERGY STAR product, take a look at the CEE^SM Residential Heating and Cooling Systems Initiative. Taking advantage of the Inflation Reduction Act will not only let you replace or upgrade your system with the government’s help, but it will also continue to save you money over the lifetime of your HVAC system by reducing your energy bills.

Can’t wait for the act to come into effect? Explore currently available rebates and credits

The Inflation Reduction Act is set to begin in 2023 and some projects can’t wait. There are several ways that Pennsylvania residents can start saving right now. Utility companies like PECO and First Energy Companies already offer customers home energy audits, money-back rebates, and other programs that can help you start your journey toward long-term energy savings. Take a look at our article Pennsylvania Energy Efficient Incentives, Credits, and Rebates, and start saving early.

As energy experts, we understand that navigating the world of energy efficiency can be confusing. If you have questions about your options or want to discuss the right avenue for you and your home, give us a call! We’ll lead you confidentially in the direction towards long-term energy savings.