What the Inflation Reduction Act means for you

As we prepare for cooler weather, home efficiency is top of mind for a lot of us! 

Congress passed one of the most sweeping climate bills last year, which can help many homeowners make their homes more efficient and reduce our use of fossil fuels.

The Inflation Reduction Act (IRA) contains a lot of tax credits and rebates for all kinds of home efficiency improvements. Some of these are provided by federal income tax credit, while others will be administered by individual states. Since the full details of the state programs aren’t available just yet, we’ll focus on the federal tax credits:

Solar Panels & Battery Storage: 30% federal tax credit with no cap.

  • This is a tax credit, not a tax deduction, meaning it lowers your tax bill dollar-for-dollar.

  • Systems need to be purchased (or financed), systems leased are not eligible.

  • If system install necessitates a new electrical panel, that can be included in overall cost.

Geothermal Heating: 30% federal tax credit with no cap.

  • This is an advanced system which involves drilling into the ground and installing a loop to use the geothermal energy for space and water heating. According to Forbes, the average system is around $24,000.

Heat Pumps, Doors, Windows and More: 30% federal tax credit, up to $3,200

  • This credit is capped, with amounts varying by item, but it does reset annually.

  • There is a $1,200 overall cap for weatherization items (doors, windows, insulation, etc).

  • The way to max out this credit would be installing a heat pump that cost at least $6,666 (to receive a $2,000 tax credit) and doing at least $4,000 in allowable efficiency upgrades (to receieve a $1,200 tax credit), for a total tax credit of $3,600.

As previously mentioned, the inflation reduction act also has two other programs that will be administered by individual states– the Home Owner Managing Energy Savings (HOMES) and High-Efficiency Home Rebate Program. These two programs will provide upfront rebates on the cost of equipment and upgrades, with the bulk of the incentives for moderate and low income homeowners. We hope to know more details by the start of next year, and we’ll have details in our Winter 2024 newsletter!

Brad Twiss