Among other tax credits or rebates under the Inflation Reduction Act, U.S. homeowners and renters can receive a $2,000 credit for the purchase of a new heat pump, heat pump water heater or biomass stove, including a pellet stove to help heat the home. Photo by moses/Pixabay.
With energy costs on the rise the Inflation Reduction Act (IRA), signed into law on August 16, 2022, is going to help lower the volatility in electricity prices by transitioning to cheaper and cleaner sources of electricity, and by doing so it will help the typical U.S. household save between about $170–$220 a year without having to change anything in your home.
The law is designed to is to curb inflation by reducing the deficit, lower prescription the prices of prescription drugs, and invest in the production of domestic energy.
But thanks to this new law, if you want to help lower your homes’ energy consumption and save even more, you can also make energy efficient changes to your home that will not only help lower your energy bills, but depending on your income will also give you substantial tax credits on your federal income tax return or rebates on the purchase and installation of qualifying energy improving products.
Beginning in 2023, the Energy Efficient Home Improvement Credit will provide tax credits equal to 30 percent of the cost of qualified energy improvements in your home.
This new credit expands and renames the Nonbusiness Energy Property Credit, which provided taxpayers with a $500 lifetime credit and was equal to only a 10 percent tax credit on the costs of qualifying energy improvements. That tax incentive had expired in 2022, but was extended by the Inflation Reduction Act into 2022.
IRA energy improvement tax credits
With the new credit, tax paying citizens can now claim up to $1,200 in credits every year, and anyone that had used up their $500 lifetime credit can start using it again. And if you spread out your qualifying home energy improvement projects you’ll be able to claim the maximum credit each year.
The new bill provides for potential tax credits on various energy saving home improvements, including:
• $600 credit on energy efficient furnaces and central air conditioners, hot water heaters and exterior windows and skylights.
• $250 credit ($500 maximum) on energy efficient exterior doors.
• Up to a $150 credit for a home energy audit.
Taxpayers can also receive a $2,000 credit, the only category allowed to be higher than the $1,200 annual limit, on the purchase of a heat pump, heat pump water heater and biomass stoves, stoves that burn biomass fuel (including wood pellets) to heat the home or to heat water.
Under the IRA, other credits home improvement energy credits are available for improving your home’s energy efficiency, such as adding solar panels, upgrading your electrical breaker box, replacing your gas stove with an electric stove, range, oven or cooktop, and for improving your home’s insulation.
How much money can the Inflation Reduction Act help you save?
The IRA will help American households save an average of $1,800 per year, either through tax credits, or direct rebates for disadvantaged communities and households that earn less than 150% of their area’s median income.
Each state will be rolling out their own IRA associated programs with different timing schedules and availability, check with your state to find what Inflation Reduction Act policies and incentives are available now where you live.
To help see how much money you can potentially save, the nonprofit group Rewiring America has a free helpful household electrification incentives calculator that displays and describes what incentives are available to American homeowners and renters now and over the next 10 years.