This article appeared in the Summer 2023 issue of This Old House Magazine. Click here to learn how to subscribe.
By now you’ve probably heard that the Inflation Reduction Act (IRA) of 2022 has plenty of good news for homeowners looking for energy savings. In fact, the 725-page bill puts $370 billion in funding toward promoting climate-change initiatives—including provisions that give hundreds or thousands of dollars back to homeowners for weatherization and energy-efficiency home-improvement projects.
That cash back comes in two buckets: tax credits and purchase rebates, which will be available through September 2031 or through 2034, depending on the program. The tax credits—extensions or modifications of existing tax credits, in many cases—are in place now, so if you complete a qualifying project in 2023, you can get a credit on your federal taxes, lowering the amount you owe at the end of the year. The newly created rebate programs, on the other hand, may not be available for use until late this year or early next year. Those programs will be administered by the states, which are awaiting guidance from the federal government—expected this summer—before they can submit their applications for funding.
“If you’ve been thinking about doing a retrofit to save some money on your heating bills, these tax credits and rebates make it easier to say yes to making those improvements,” says Stephen Walls of the Natural Resources Defense Council, an environmental nonprofit.
Some of these programs are available only to or have more benefits for lower-to-middle-income households. The income thresholds vary depending on the median income in your area. You can check your own eligibility for all the programs by entering your income and ZIP code into the IRA calculator at rewiringamerica.org.
Once you’ve determined your eligibility, your next step is likely to get a current home-energy audit; there is a $150 tax credit available to offset the cost. Your local utility may provide home energy audits, or you can find a certified energy assessor through the Residential Energy Services Network (hersindex.com). While a home-energy audit is not required for most programs, having one performed can help you zero in on which projects might yield the greatest energy savings now, and give you baseline data to help calculate future energy savings.
Here’s a closer look at some key IRA incentive programs.
Home Improvement Tax Credits
For tax credits, which are available now, you have to fund the project upfront, but you’ll receive some or all of that money back via a discount on the amount of taxes owed at the end of the year. If you don’t owe any tax in the year that you spend the money, some credits can be carried forward.
For small, one-off projects
Energy-Efficient Home Improvement Credits pay you back for home-energy audits and on the purchase of specific items that meet predetermined energy-efficiency standards. (Get details on specific products’ eligibility by going to the “tax credits for homeowners” page at energystar.gov.) There are no income eligibility requirements for these credits, and in most cases, you can combine credits for a total of up to $1,200 per year through 2032.
Credits you can qualify for each year:
- Home-energy audit: up to $150
- Insulation, uninstalled: no limit
- Heat pump, heat-pump water heater, or biomass (wood or pellet) stove, installed: up to $2,000 total ($1,200 annual limit does not apply)
- Windows and skylights, uninstalled: $600 total
- Central air-conditioning, installed: $600 per unit
- Natural gas, propane, or oil water heater, installed: up to $600 per unit
- Electric panel upgrade to at least 200 amps: $600 total
- Exterior doors, installed: $250 per door, up to $500 total
What you need to know
Since the $1,200 limit is an annual cap, you can potentially get a much higher amount back over time by filing for different purchases each year. For example, you might have an energy audit and replace two exterior doors and a few windows to get a $1,200 credit this year, and then next year replace a few more windows or upgrade your central air and your electric panel for another $1,200 credit.
For big-ticket system upgrades
Potentially the most valuable credits in the IRA, Residential Clean Energy Credits are worth up to 30 percent of the cost of qualifying clean-energy systems and their installation in homes. In most cases, there is no limit on the amount of the credit or the income of the recipient.
Projects that qualify:
- Residential solar-panel systems and solar water heaters
- Small wind turbines
- Geothermal heat-pump systems
- Battery storage for home energy, with a capacity of at least 3 kilowatt-hours
- Fuel cells (which produce power using hydrogen)
What you need to know
While the 30 percent credit remains in place for projects started and completed between 2022 and the end of 2032, it falls to 26 percent for those put in place in 2033 and 22 percent for those done in 2034.
For electric vehicle chargers
The IRA includes several tax incentives for the purchase of a new, qualifying electric vehicle (EV), including a tax credit of up to $7,500 (depending on income and several other stipulations). Homeowners who install an EV charger at their home in a low-income community or a non-urban area can receive 30 percent of the project cost up to $1,000. To prepare for installation, you’ll want to make sure that your home is electric-ready, and that your panel can handle the increased load in order to charge your EV at home. That may require you to upgrade wiring or install a new breaker box, projects eligible for electrification rebates.
Home Improvement Rebates
While the federal government will provide nearly $8.6 billion to fund rebates, each state will distribute them to residents as they purchase eligible items. Each state can create its own rebate program, pending federal approval, and states should begin rolling them out by the end of this year. Once your state has a program in place, you can find details on its energy department website or at dsireusa.org. While electrification rebates and efficiency rebates can’t be used for the same technology, they can be used at the same time.
For going electric
The electrification rebates are point-of-sale to homeowners when they purchase systems that run on electricity or items that make their homes more energy efficient and thus more electric-friendly. They include projects such as adding insulation, air sealing, and improving ventilation.
These rebates do have income limits: Anyone who earns less than 150 percent of the area’s median income can get a rebate worth up to 50 percent of the purchase cost. With an income less than 80 percent of the area’s median, individuals can receive a rebate worth up to 100 percent of the cost or the rebate cap, whichever is lower.
Covered projects (including installation) and their annual limits:
- Heat-pump HVAC system (space heating and/or cooling): up to $8,000
- Electrical panel/breaker box upgrade: up to $4,000
- Electric wiring: up to $2,500
- Heat-pump water heater: up to $1,750
- Insulation, air sealing, and ventilation (including ductwork): up to $1,600
- Electric range or cooktop (including induction), and electric heat-pump clothes dryer: up to $840
What you need to know
These rebates can be combined for multiple projects, but you cannot receive more than $14,000 total in electrification rebates. While manufacturers and contractors should be able to tell you which products qualify, you may want to check with your state’s energy department once it publishes guidelines.
For whole-house energy-reducing projects
The efficiency rebates focus on large projects that improve energy efficiency, such as upgrading doors and windows, putting in LEDs, improving insulation, upgrading appliances, and updating HVAC to reduce the total amount of energy consumed by your house. You’ll need a contractor who has software to model the potential energy savings to get the rebate upfront; otherwise, you’ll have to document the actual energy
savings and file for the rebate after the project is completed. Or you can work with an “aggregator,” a large contracting company, like Sealed or BlocPower, that shepherds homeowners through the rebate process by fronting the rebate cost for the project, obtaining utility data, and filing for the rebate on the homeowner’s behalf.
While the states determine what type of documentation will be needed for now utility bills will likely suffice. But measured energy savings might yield more benefits for some households, says Rewiring America’s Sage Briscoe. “It can result in larger rebates and bigger reductions in energy usage—and bigger savings in the long run.”
Those whose income is less than 80 percent of the median income for their area can get the most money under this program, but even higher-income households can get up to $4,000 if they reduce energy use by 35 percent or more.
Here’s how energy-saving projects can pay back under this program:
- For at least 15 percent measured energy savings: for low-to-moderate- income households, 50 percent of project costs or $1,000 per 1 percent of energy saved, whichever is less; up to 80 percent of project costs, or $200 per 1 percent of energy saved, whichever is less
- For 20 to 34 percent in modeled energy savings: for low-to-moderate-income households, 50 percent of project costs up to $2,000; 80 percent of project costs, up to $4,000
- For 35 percent or more in modeled energy savings: for low-to-moderate-income households, 50 percent of project costs, up to $4,000; 80 percent of project costs, up to $8,000
What you need to know
The efficiency rebates don’t come with any per-item limits, just a total project tally. You cannot claim two different rebates for the same item. However, you can combine rebates for a single retrofit, if they’re for different items. You can claim both tax credits and rebates for the same item—but you can’t get more than the total cost of the item. You can also combine IRA incentives with state and utility programs. If you’re just replacing a single appliance or doing a smaller project, those other programs might be a better fit.
Should You Wait to Do Home Improvement Projects?
Since some rebates may not be in place until next year, it may make sense to hold off on planned projects until 2024—or later. To figure out the best time for your project, ask yourself these questions:
Is your project time-sensitive?
If you have a broken water heater or oven, you may not have the luxury of waiting for the state to put its rebate programs in place. That said, you may still be able to get incentives from your state energy department or your local utility department. Find a list of programs available to you at dsireusa.org.
How long are you going to be in your home?
While you should see lower energy costs over time, some projects require a significant out-of-pocket investment, even after credits or rebates. If you’re planning to move in the next few years, run the numbers to see how long it could take you to break
even—you can use the Savings Calculator at energystar.gov to get a ballpark estimate. In general, payback periods are at least 5 to 10 years.
Keep in mind that improving home efficiency could also improve your home’s resale value. Switching to electric energy can save households $1,800 per year, on average, according to Rewiring America.
Do you expect prices for technology to come down?
Just as the cost of solar panel systems has fallen significantly, experts believe the cost of home tech like heat pumps and induction ranges could start to come down even further as they become more mainstream. In that case, waiting a few years may make purchasing them an even more cost-effective investment.