In August 2022, President Biden signed into law the Inflation Reduction Act (IRA), marking the most notable piece of action ever taken by Congress in the fight against climate change.
The law, which builds on climate and clean energy actions taken in the administration’s Bipartisan Infrastructure Law (also known as the Infrastructure Investment and Jobs Act of 2021), offers clean energy, climate mitigation and resilience, agriculture and conservation-related tax incentives and investment programs that make it more enticing (and accessible) for consumers and businesses to increase the efficiency of their energy habits and invest in reducing their carbon footprint.
While the program was drafted at a federal level, providing $400 billion in funding through a combination of tax incentives, grants and loan guarantees, its implementation will be state-specific, with some states offering additional incentives to their residents. Most funding will be allocated to clean electricity and transmission initiatives (like home electrification projects), while the second largest allocation of funding will be directed at transportation and the adoption of electric vehicles (EVs.).
For homeowners and renters, this is great news! It’s a cue to start investigating areas in your life (and living space) where efficiency can be enhanced and consider investing in those clean energy upgrades that were previously inaccessible without this newly introduced funding. Keep reading to find out how!
To better understand how you can benefit from the Inflation Reduction Act, it’s important to know a little bit more about the two most important forms of financial incentives offered under the law — tax credits and tax rebates.
Tax credits are funds that can be used to offset the amount owing on your annual income taxes. They’re applied at the time of tax filing and, if applicable, can greatly reduce what you have to pay. It’s important to be aware, however, that tax credits are only beneficial if you owe money on your taxes at the end of the year. In other words, if the tax credits outnumber your amount owing, you won’t receive that additional money back in the form of reimbursement.
The three major tax credit opportunities you’ll want to pay attention to under the Inflation Reduction Act are the Residential Clean Energy Credit, the New and Previously Owned Clean Vehicle Credit and the Energy-Efficient Home Improvement Credit. Keep in mind, however, that while the Residential Clean Energy Credit applies to both new and existing homes, the Energy-Efficient Home Improvement Credit is only applicable to upgrades made to existing properties.
In contrast to tax credits, tax rebates *do* allow you to receive money back in the form of reimbursement, regardless of your amount owing. Consider them like a refund of taxpayer money directly into your bank account. Unlike credits, which are applied at the conclusion of the annual tax season, tax rebates can be issued at any time throughout the year, retroactively crediting consumers for various investments such as energy-efficient home upgrades or the purchase of an EV.
Currently, the federal government has issued two rebate programs under the Inflation Reduction Act, the Home Energy Performance-Based, Whole House Rebate Program (HOMES) which aids in retrofitting homes, and the High-Efficiency Electric Home Rebate Act (HEEHRA) which focuses on home electrification projects.
Consumers should still be prepared to pay for these investments upfront, as rarely will these rebates be applied at the point of purchase, but this may change in the coming years!
So, what exactly do these tax credits and rebates cover? Let’s take a broad-level look at the incentives offered under the Inflation Reduction Act and their benefits.
For homeowners, there’s a wide range of funding opportunities available through the Inflation Reduction Act that are designed to incentivize energy-efficient home improvements. Here are a few of the ones you should consider.
A home energy audit is a great place to start when it comes to identifying the areas in your home that may benefit from an efficiency upgrade. They can help you make a plan to cut back on consumption and identify the areas in your home where investments will offer the most benefit.
During a home energy audit, a licensed auditor will come to your home and conduct an in-person walk-through, analyzing each room to identify energy use and highlight opportunities for upgrades.
In preparing for a home energy audit, it’s a good idea to take some time to reflect on your daily energy habits. The U.S. Department of Energy recommends asking yourself questions like:
Tax Credit Opportunity
As of January 2023 (and through until December 2032), existing homeowners can claim 30 percent of the cost of a home energy audit through the Energy-Efficient Home Improvement Credit, up to a value of $150.
Under the High-Efficiency Electric Home Rebate Act, low- and moderate-income households can benefit from investing in home electrification projects such as the introduction of efficient electrical appliances. For instance, ditching your gas stove for an electric one could equate to up to $840 back in your pocket!
What qualifies as a low- or moderate-income household varies by state, depending on your region’s median income. The U.S. Department of Housing and Urban Development (HUD) defines a low-income household as making 80 percent or less than the state's median family income and a moderate-income household as making 80-150 percent of this same median value. You can use this handy tool from HUD to determine where your household falls!
Depending on the upgrades you’re making, you may also qualify for a credit under the Energy-Efficient Home Improvement Credit, providing your chosen appliances meet the energy-efficiency guidelines set forth by the IRS.
Tax Credit Opportunity:
Now through 2032, existing homeowners can claim 30 percent of the cost of certain home appliance upgrades to a maximum of $600 on their annual income taxes. This credit is part of a broader opportunity under the Energy-Efficient Home Improvement Credit, which has a total value cap of $1,200 annually.
Tax Rebate Opportunity:
Low- and moderate-income households can claim a rebate of up to $840 when they invest in an Energy Star electric stove, cooktop, range or oven and an additional $840 when they purchase an Energy Star electric heat pump clothes dryer.
Investing in solar energy to power your home with clean electricity can save the average family $300 per year (that's $9,000 over the lifetime of a home solar energy system!) — but making that initial investment can be a lot. Solar panels can cost between $3,500 and $35,000, depending on what type you choose (yikes!), so any help to make the cost more accessible is a huge win for consumers.
Luckily, the Inflation Reduction Act is helping here, too, in the form of tax credits available for investments in renewable energy sources!
Tax Credit Opportunity
As of 2023, new and existing homeowners can claim 30 percent of the cost of applicable solar investments, including battery storage technology and spending related to labor, permits and inspections through the Residential Clean Energy Credit, with an uncapped limit on the total purchase price.
⚡️Note! The Residential Clean Energy Credit will drop to a value of 26 percent in 2033 and reduce further to 22 percent in its final year of availability, 2034.
For many states, this federal credit can also be partnered with additional incentives available at a state level for home solar energy investments.
Homeowners may also want to consider whether an upgrade to their home’s electric panel (otherwise known as a breaker box) and wiring will be required. In particular, if you’re doing a number of other electrical upgrades, such as the installation of new electric appliances or the addition of an electric heat pump (more on that below), you’ll want to make sure that your home is equipped to handle the increased electrical flow.
For more context, many smaller homes, or ones that are a bit older, operate on 60- or 100-amp electric panels, which may not be equipped to power newer appliances or increased levels of electricity. In contrast, most newer homes run on 200-amp panels, which should do the job just fine.
Tax Credit Opportunity
Existing homeowners can now claim 30 percent of the project cost on the improvement or replacement of their panelboard, sub-panelboard, branch circuits or feeders up to a total credit value of $600 through the Energy-Efficient Home Improvement Credit. It’s important to note, however, that qualifying upgrades must have a load capacity of no less than 200 amps and must enable the installation and use of other qualified energy-efficiency home improvements (such as electric appliances or heat pumps).
Tax Rebate Opportunity
Under the High-Efficiency Electric Home Rebate Act, homeowners can also claim up to $2,500 back on upgrades to their home’s electrical wiring. In addition, the act covers electric panel upgrades, up to a value of $4,000 — a huge win given that the average upgrade costs between $1,300 and $3,000.
Heat pumps are more efficient alternatives to furnaces and air-conditioning systems, providing an all-in-one solution that can save you a ton of money on your energy bill in the long term.
The great news is that under the Inflation Reduction Act, homeowners can now qualify for a few different credit and rebate opportunities that make investing in electric or natural gas heat pump technology more affordable.
Alternatively, homeowners may also benefit from pursuing other green heating options, such as the installation of a solar hot water heater or a geothermal heat pump.
Tax Credit Opportunity:
Now through 2032, existing homeowners can benefit from a 30 percent credit through the Energy-Efficient Home Improvement Credit on electric or natural gas heat pump and heat pump hot water heater purchases, up to a value of $2000.
Alternatively, homeowners can claim 30 percent of the cost of applicable renewable energy investments (such as the installation of a solar water heater or geothermal heat pump) through the Residential Clean Energy Credit, including spending on labor, permit and inspections with an uncapped limit on the total purchase price.
⚡️Note! The Residential Clean Energy Credit will drop to a value of 26 percent in 2033 and reduce further to 22 percent in its final year of availability, 2034.
Tax Rebate Opportunity
Low- and moderate-income households can also benefit from a variety of rebate opportunities pertaining to electric heat pumps under the High-Efficiency Electric Home Rebate Act.
Specifically, these rebate opportunities qualify homeowners for $8,000 back on the purchase of an Energy Star electric heat pump for their home and $1,750 back on the purchase of an Energy Star electric heat pump hot water heater.
And finally, after making some or all of the above-mentioned upgrades, there’s one other major way that homeowners can save under the Inflation Reduction Act — and that’s through the Home Energy Performance-Based, Whole House Rebate Program.
The Home Energy Performance-Based, Whole House Rebate Program benefits homeowners who reduce their overall energy footprint via insulation or HVAC upgrades to their home, and the amount you can earn back is based on the overall prediction of energy savings for your residence.
Tax Rebate Opportunity
Under the Home Energy Performance-Based, Whole House Rebate Program, low-income families can receive 80 percent of their project costs back, up to a value of $4,000 if the project is predicted to have a 20-35 percent energy savings and up to $8,000 if the upgrades are estimated to have a savings of over 35 percent.
In contrast, moderate- to high-income households (those making over 80 percent of their state’s median household income) can receive 50 percent of their total project cost back, up to a value of $2,000 on projects predicted to have a 20-35 percent energy savings and up to $4,000 back on upgrades with savings estimated to be above 35 percent. For multi-family households in this income bracket, project costs are capped at $200,000 and $400,000, respectively for these two tiers of energy savings.
Overall, these various incentives provide a ton of benefits to homeowners, whether it be an overall reduction in the cost of monthly energy bills, improved comfort and air quality due to insulation, HVAC and air-sealing upgrades or increased property value, which can produce a further return on investment in the long-term. Plus, they have the added bonus of helping the planet too.
Use the information above as a starting point to determine the upgrades that might be right for you and take some time to investigate further incentives that may be available to you at a state level!
As a renter, your hands can be tied when it comes to a lot of home improvement upgrades, but that doesn’t mean there aren’t plenty of ways you can take action toward a smaller energy footprint at home.
One way you can do this is by knowing what to look for when viewing a new rental property. Checking for ENERGY STAR-certified appliances, inquiring about a property’s existing efficiency upgrades (like solar power or heat pump technology) and asking if the home has been rated against the U.S. Department of Energy's Home Energy Score™ are great starting points.
If you’re already renting, you can talk to your property manager or landlord about making some of the upgrades mentioned above in the Homeowner Incentives & Benefits section. With all of the current funding opportunities, your suggestion may just be the push they need. You’ll benefit from a healthier, cleaner, more energy-efficient space (hello, energy bill savings!), and they’ll benefit from the advantages of increased property value!
If you’re not sure how to start the conversation, consider getting a home energy audit first!
Having a licensed auditor walk through your living space is a great way to get a better idea of what upgrades would best benefit the efficiency of your rental. At the end of your audit, your auditor will produce a report that you can share with your landlord to help guide future decisions about the property — and much of this cost will be covered under the Inflation Reduction Act’s Energy-Efficient Home Improvement Credit!
Tax Credit Opportunity:
As of January 2023 (and through until December 2032), renters of existing properties can claim 30 percent of the cost of a home energy audit through the Energy-Efficient Home Improvement Credit, up to a value of $150.
Unlike homeowners who have more flexibility to implement larger-scale changes to their living space, as a renter, you’ll likely be looking for easier-to-install options that don’t cause as much permanent change.
Fortunately, over the coming years, as demand continues to increase for energy-efficient home upgrades, it’s more and more likely that we’ll be seeing a greater number of renter-friendly products enter the market — like window unit heat pumps!
As this happens, it is the Inflation Reduction Act’s rebate opportunities that will likely have the most benefit to renters. Here’s how.
Tax Rebate Opportunity
Under the High-Efficiency Electric Home Rebate Act, low- to moderate-income renters can benefit from up to $840 back on the purchase of an Energy Star electric heat pump clothes dryer or up to $8,000 back on the purchase of an Energy Star electric heat pump for their entire rental unit.
Energy Star electric stoves, cooktops, ranges and ovens also qualify for a maximum rebate of $840 — and there are tons of renter-friendly options already available!
Overall, the benefits of the Inflation Reduction Act remain substantial for renters, even if they are slightly more limited to those of homeowners.
Over time, as more property owners begin to take advantage of these energy-saving incentives, renters will benefit from an increased pool of efficient properties to choose from. And for those that are already able to take action on some of these upgrades now, benefits will come in the form of reduced energy bills, enhanced air quality and overall improved comfort in their living space.
Use the points above to start the conversation with your landlord and get a better understanding of what’s within your control and what you may be able to work on together — you never know until you ask!
Outside of your living space, there is another major way the Inflation Reduction Act is incentivizing energy-efficient investments — and that’s through transportation.
Under the act, consumers are able to take advantage of a number of funding opportunities designed to make the purchase of new and used electric vehicles more accessible. Keep reading for everything you need to know.
The purchase of a new electric or plug-in hybrid electric vehicle qualifies for a tax credit under the Inflation Reduction Act’s New Clean Vehicle Credit. This credit is an amendment of the Qualified Plug-In Electric Drive Motor Vehicle Credit having added new criteria specifying that the final assembly of the vehicle must be completed in North America.
To determine whether a car’s final assembly was completed in North America, consumers can find the assembly information for their vehicle through the National Highway Traffic Safety Administration's Vehicle Identification Number (VIN) Decoder.
For new electric vehicles put in service on or after April 18, 2023, the Clean Vehicle Credit is split into two sets of requirements, each worth roughly half of the total $7,500 credit value. Vehicles can qualify for the full credit or a partial credit depending on whether they meet one or both sets of specifications.
The first portion of the credit relates to battery storage and is worth up to $3,750. According to the tax credit criteria, a certain percentage of the battery itself must be manufactured or assembled within North America. This requirement will begin in 2023 at 50 percent and gradually increase each year by the amounts outlined below:
202350% Manufactured/Assembled in North America202460% Manufactured/Assembled in North America202670% Manufactured/Assembled in North America202780% Manufactured/Assembled in North America202890% Manufactured/Assembled in North America2029-2032100% Manufactured/Assembled in North America
The second part of the credit relates to the sourcing of minerals and is referred to as the ‘critical minerals requirement.’ It accounts for the remaining $3,750 allotted to the Clean Vehicle Credit.
The ‘critical minerals requirement’ stipulates that a certain percentage of the minerals used in the vehicle’s battery must be sourced from within the United States or from a country with whom the United States has a free-trade agreement. This requirement will begin in 2023 with a value of 40 percent and gradually increase each year by the amounts specified below:
202340% of Minerals Sourced Within the U.S. Or a Country With a Free-Trade Agreement202450% of Minerals Sourced Within the U.S. Or a Country With a Free-Trade Agreement202560% of Minerals Sourced Within the U.S. Or a Country With a Free-Trade Agreement202670% of Minerals Sourced Within the U.S. Or a Country With a Free-Trade Agreement2027-203280% of Minerals Sourced Within the U.S. Or a Country With a Free-Trade Agreement
In addition to the criteria noted above, those purchasing new electric or plug-in hybrid electric vehicles must ensure that the vehicle comes from a qualified manufacturer, its Manufacturer's Suggested Retail Price (MSRP) must not exceed specified limits ($80,000 for vans, SUVs and pickups and $55,000 for sedans, wagons, hatchbacks and other EVs), and purchasers must fall within a specified income bracket as outlined in the chart below.
It’s also important to note that as of 2024, battery parts and critical minerals cannot be sourced from countries deemed as ‘foreign entities of concern’ — although this list of what qualifies as a ‘foreign entity of concern’ is yet to be released.
When purchasing a qualifying new electric or plug-in hybrid electric vehicle, be sure to ask for the following information, as you’ll need it when you go to file for your tax credit:
Electric and plug-in hybrid electric vehicles put in service prior to April 18, 2023, will not have to meet the above-mentioned battery and critical mineral requirement but will still be subjected to the MSRP and income limitations. In lieu of the battery and critical mineral requirements, these new electric vehicles will earn a credit of $2,500 if their battery has a minimum capacity of seven-kilowatt hours.
Consumers can then earn further credit, up to a value of $5,000, for each additional kilowatt hour of capacity their battery possesses beyond the seven-kilowatt minimum.
Tax Credit Opportunity:
To summarize, qualifying consumers can take advantage of an offset amount of up to $7,500 between now and 2032 through the Inflation Reduction Act’s New Clean Vehicle Credit on the purchase of new, qualifying electric and plug-in hybrid electric vehicles that meet the specifications outlined by the IRS.
Currently, like other tax credits, the New Clean Vehicle Tax Credit must be claimed at the time of tax filing. However, this may change in 2024, allowing consumers to claim the credit directly through the car dealership resulting in immediate, upfront savings — win!
Another big change following the revamp of the previous Qualified Plug-In Electric Drive Motor Vehicle Credit is the introduction of qualifying used electric vehicles and plug-in hybrid electric vehicles, which now fall under the Previously Owned Clean Vehicles Credit, worth a value of up to $4,000.
In order for a previously owned vehicle to qualify for the credit, it must weigh less than 14,000 pounds and be either a qualified fuel cell electric vehicle or a plug-in hybrid electric vehicle made by a qualified manufacturer, capable of charging, with a battery capacity of seven kilowatt hours or more.
The vehicle must also be at least two years old, the purchaser must not be the original user of the vehicle and the vehicle must have been acquired for a sale price of $25,000 or less. The purchaser must also be the first person to claim credit on the vehicle, besides the original owner, since August 16, 2022.
Additionally, the individual applying for the credit must not have claimed another Previously Owned Vehicle Credit in the three years prior to the purchase of the vehicle and must fall within the specific income limitations outlined below.
Filing StatusAnnual Gross Income LimitMarried filing jointly or filing as a qualifying surviving spouse or a qualifying widow(er)$150,000Head of household$112,500All other taxpayers$75,000
Tax Credit Opportunity:
Consumers purchasing a previously owned clean vehicle can qualify for up to $4,000 in credit between now and 2032 under the Previously Owned Clean Vehicles Credit, providing they meet the specifications outlined by the IRS.
Already have an electric vehicle or are interested in taking your investment one step further? You’re in luck! Under the Inflation Reduction Act, some homeowners may also benefit from additional tax credit opportunities for the installation of an at-home electric vehicle charging station.
The credit is specific to certain rural or low-income regions and applies to charging stations for electric vehicles as well as e-bikes and electric motorcycles, including the costs of hardware and installation. It even includes an upgrade to your home's electric panel if it's needed!
Tax Credit Opportunity:
Now through 2032, homeowners can claim a credit of 30 percent, up to a value of $1,000, on the purchase and installation of any at-home electric vehicle, e-bike or e-motorcycle charging station.
While the Inflation Reduction Act offers great advantages for consumers and businesses alike, the reality is that implementing these initiatives won’t be without its challenges. Let’s take a look at a few of them.
The first challenge that we need to consider is grid capacity — and the gist of it is pretty simple. As an increasing number of buildings move towards fully-electric systems, our overall reliance on the grid is destined to increase. And, with extra demand on the grid, grid operators need to be able to find extra supply or risk outages and ever-inflating electrical costs for consumers — no thanks!
Some of this increased demand is being supported through grid-enhancing technologies (GETs), which use sensors, power flow control devices and analytical tools to help support the transfer of electricity across real-time and future planning.
A great example of a grid-enhancing technology is demand response, and at OhmConnect, it’s kind of our thing! Think of demand response as an intuitive response to peaks in energy consumption. We analyze the grid to predict and assess times when increased demand is occurring or likely, and then we let consumers like you know about it so that you know when to power down and save.
As a consumer, you benefit from being able to avoid consumption during times when electricity is at its most expensive (hello, savings!), and grid operators benefit from reduced demand at times when they’re already under strain.
Plus, as a free OhmConnect member, you can get rewarded for participating in these energy-saving events with points that earn you gift cards, prizes and money right back in your wallet — but you can learn more about that by clicking here.
Beyond grid capacity, we also have to consider installation, and another major challenge associated with the Inflation Reduction Act and its incentives is the current labor shortage impacting the construction industry. A lack of qualified builders with the technical knowledge required to install these new environmentally-conscious upgrades means many property owners are without the human resources needed to complete their home efficiency projects.
For further context, it’s reported that applications for construction-related jobs fell by over 40 percent between 2019 and 2020 — and it’s unfortunately a dip in recruitment that has remained stagnant in the three years since.
A large part of the issue is that there just aren’t enough workers available to fill these roles, and as a result, many of the jobs remain unfilled, regardless of the increase in demand. It’s unfortunate news for construction companies and homeowners alike, and it will take some time to build a workforce large enough to compete with the growing need for skilled workers. And that growing need is substantial, with a recent analysis from Associated Builders and Contractors estimating a required 546,000 additional workers to fulfill demand in 2023 alone.
The good news is for individuals looking to enter the construction labor force and get involved with the efficient housing sector at a deeper level, demand is high, and the potential for growth in the field is larger than ever!
Construction isn’t the only sector facing potential challenges in relation to the Inflation Reduction Act, though. The supply chain will also face some pretty significant impacts.
According to Columbia University’s Climate School, it’s estimated that demand for critical minerals (so named because of their essential role in global economics and sustainability) will increase by 400-600 percent worldwide over the coming decades.
The issue with this increased demand, though, lies in the fact that many of these ‘critical minerals’ come from only a handful of countries, and so political unrest and other global disturbances can quite easily derail the chain of supply for these integral materials.
But how do we fix this?
Friendshoring, otherwise known as allyshoring, plays an important role in the Inflation Reduction Act, especially as it relates to materials necessary in the manufacturing of electric vehicles. It means that the U.S. will begin to prioritize manufacturing, mining and sourcing partnerships with countries that are trusted democratic allies. Those not identified as geopolitical allies are currently at risk of being labelled as ‘foreign entities of concern,’ subsequently barring them as viable partners in the import of critical minerals by as early as 2024.
On a broad level, allyshoring has the benefit of strengthening the global supply chain over time by diversifying the countries through which these critical materials are sourced. It also encourages the sourcing and production of more materials domestically, which means more jobs and more support for our own economy. The downside, though — in the shorter term — is supply shortages.
Without democratic partnerships in place that can meet growing demand, it’s possible that our supply chain will experience major scarcity of critical materials over the coming years as it works to set up alternative partnerships that support the Inflation Reduction Act’s guidelines.
There is also the concern of warehousing space. With an increasing amount of production and manufacturing being brought in domestically, the question of where we will store all of these materials is one that still needs to be answered.
On a more positive note, however, there are many ways that the supply chain will also benefit from incentives offered under the Inflation Reduction Act, including electric vehicle credits on smaller cars, trucks and vans used in last-mile deliveries, renewable energy incentives for warehouse spaces, increased employment opportunities and a range of funding benefits offered to port authorities.
And finally, for consumers, the navigation of tax filing itself may pose some challenges too, but having an understanding of what options are available to you is a great place to start!
In 2023, all incentives will come in the form of tax credits, with rebate opportunities becoming more available in 2024. This means that while you can reduce the amount owing on your annual income taxes, you cannot receive any additional reimbursement beyond offsetting the amount you have to pay. In other words, if you owe $10,000 in taxes and have $13,000 in tax credits, the most you will receive is $10,000 to offset your tax debt.
It’s also important to note that many qualifying efficiency upgrades under the Inflation Reduction Act will require upfront payment with money refunded to you at tax time (although this may change in the future with rebates applied immediately at the time of purchase!). If you’re unable to pay for the upgrades upfront (or finance your renovations at a reasonable interest rate), you may want to consider exploring the additional funding opportunities available to you. Many cities and states have grant programs targeted at lower-income homeowners and renters that can assist.
For example, some states have established Green Banks, which are mission-driven institutions focused on furthering the deployment of clean energy rather than maximizing profits. They're specifically designed to help expedite our transition to clean energy sources by enabling consumers to access financial assistance, such as low-interest loans with fixed monthly payments. It's a resource that can help make these efficiency upgrades more accessible upfront while also helping to spread out the remaining payments not covered under the Inflation Reduction Act’s various tax credits and rebate opportunities over time.
You’ll also want to remember that while the Inflation Reduction Act’s incentives are plentiful, they aren’t unlimited and paying attention to financial caps and timelines is key. Here’s a quick review of each of the credit and rebate opportunities we’ve covered on this page.
The Energy Efficient Home Improvement Credit is available to existing homeowners now through 2032 and allows you to claim up to $3,200 every year on qualifying upgrades. This $3,200 annual limit consists of $1,200 dispersed between applicable home upgrades like doors, windows, insulation and energy audits, and an additional $2,000 reserved specifically for the purchase and installation of heat pumps, heat pump water heaters, biomass stoves and biomass boilers.
The Residential Clean Energy Credit has no financial cap and is available now through 2034 to new and existing homeowners alike. It allows consumers to claim 30 percent of the total project cost on qualifying renewable energy upgrades, including spending related to materials, labor and installation, regardless of how much the project costs. The only exception to this is the installation of fuel cells which have a $500 limit for each half-kilowatt of capacity they possess. This credit will decrease in value in 2033, allowing for only 26 percent of total project costs to be claimed and, again, in its final year, 2034, to just 22 percent.
Under the New Clean Vehicle Credit, qualifying consumers can take advantage of an offset of up to $7,500 between now and 2032 on the purchase of new electric and plug-in hybrid electric vehicles that meet the specifications outlined by the IRS.
Similarly, the Previously Owned Clean Vehicles Credit allows qualifying consumers to access an offset of up to $4,000 between now and 2032, providing they meet the required specifications.
Homeowners of both new and used electric vehicles can also claim a credit of 30 percent, up to a value of $1,000 during this time, on the purchase and installation of any at-home electric vehicle, e-bike or e-motorcycle charging station.
Now let’s look at the tax rebate opportunities.
As we mentioned earlier, the Home Energy Performance Based, Whole House Rebate has a maximum value that is calculated based on the predicted energy savings of a retrofitted home and is available to low-, moderate- and high-income families.
In order to qualify, projects must have begun on or before August 16, 2022, and must be completed no later than September 30, 2031.
Low-income households can receive 80 percent of their project costs back, up to a value of $4,000 if the project is predicted to have a 20-35 percent energy savings and up to $8,000 if the upgrades are estimated to have a savings of over 35 percent.
In comparison, moderate- to high-income households can receive 50 percent of their total project cost back, up to a value of $2,000 on projects predicted to have a 20-35 percent energy savings and up to $4,000 back on upgrades with savings estimated to be above 35 percent. For multi-family households in this income bracket, project costs are capped at $200,000 and $400,000, respectively, for the two tiers of energy savings.
And finally, we have the High-Efficiency Electric Home Rebate Act. This rebate opportunity will only be available to low- and moderate-income families earning less than 150 percent of their state's median income level and will expire in 2032.
Low-income households will be able to claim 100 percent of the cost of qualified electrification upgrades, while moderate-income households will be able to claim 50 percent of the cost of qualified upgrades, with a maximum annual rebate value of $14,000. The total amount that can be claimed will also vary depending on the upgrades being made. For example, upgrades to electrical wiring qualify for a maximum rebate of $2,500, an Energy Star electric heat pump has a total value of $8,000, and the installation of an Energy Star electric stove or cooktop has a rebate capped at $840.
Not sure if you qualify as a low-, moderate-, or high-income household? Don’t forget to check out this easy-to-use tool from HUD! It can help you determine where your household falls in comparison to your state’s median income level.
It’s clear that the future of energy-efficient housing is a bright one, and initiatives like the Inflation Reduction Act and its associated opportunities are a great first step in making energy-friendly homes more accessible to homeowners and renters alike. Here are a few other things to consider.
While in the U.S. residential building codes are regulated at a state or municipal level, the International Energy Conservation Code (IECC) offers a model energy code at a national level, outlining minimum efficiency standards for new residential construction projects and offering a guideline for any state looking to adopt an energy code of their own.
The code is updated every three years, with the last update having been made in 2021, which means we can expect another update to be made next year, in 2024. These regular updates ensure that we continue to work towards making our nation’s buildings as energy-efficient as possible, keeping up with the latest building technologies and energy-saving practices.
It’s predicted that the 2024 code update will require homes to meet stricter energy performance criteria, holding builders to higher standards on new construction projects. Some of the proposed standards currently under consideration include:
Time will tell which of these and other proposed considerations will make it into the updated 2024 IECC, but the results of the update are likely to be twofold. Firstly, the prices of new home builds will continue to rise as builders are forced to adopt newer technologies and comply with higher energy-efficiency standards. Secondly, though, and on a more positive wavelength, as these energy-efficient initiatives become increasingly mandated, it is predicted that upgrades like the ones mentioned above will become more affordable for homeowners across the board.
Another important consideration when discussing the future of energy-efficient housing is the growing movement toward banning the use of natural gas lines in new residential buildings.
In fact, New York City has already taken this step with legislation that bans the use of fossil fuels, like natural gas, in new residential construction projects. The municipal law, entitled Introduction 2317, which was signed into action in 2021, will come into effect for residential buildings in the city under seven stories tall by the end of 2023. For new builds over seven stories, the bill will come into effect in mid-2027, and affordable housing projects will work on a slightly adjusted timeline of 2026 for buildings under seven stories, and 2028 for those above.
It’s a huge win for the city, and according to RMI, it will likely save around 2.1 million tons of carbon emissions between now and 2040 alone. That's the equivalent of 450,000 cars annually — win!
The bill also has the benefit of reducing the risk of natural gas leaks and associated accidents while lessening consumer exposure to the health risks associated with natural gas appliances, like childhood asthma and cardiovascular effects.
It’s a step in legislation that’s now being followed at a state level, with New York recently becoming the first state to ban fossil fuel combustion in new buildings statewide. This law will come into effect for buildings under seven stories as early as 2026, with requirements implemented for taller buildings taking effect in 2029.
On the whole, it’s great news, and in the coming years, it's predicted to be a trend that continues, with other cities already moving to adopt natural gas bans across the country and states like California working towards statewide legislation too.
But what does this mean for consumers? Well, the biggest takeaway is that housing will be moving increasingly towards whole-home electrification, with fully electric heating and cooking appliances slowly phasing out more traditional gas line systems.
As we mentioned above, one of the biggest challenges with increased energy-efficient housing and home electrification is the impact it will have on existing grid systems. As more commercial and residential buildings move toward electric alternatives, demand on the grid will increase, and without solutions to help support this increased demand, electricity providers may not be able to provide in the capacity we need them to.
This is where home solar energy systems can really help! Home solar panels and solar battery storage systems offer a way for homeowners to go off the grid flexibly while still maintaining access to the electricity they rely on. These systems allow homeowners to stay plugged in during power outages and during severe weather events (two things that are becoming increasingly common), while also cutting costs on their monthly energy bills by disconnecting from the grid during peak usage times (hello, OhmHours!).
So what does this mean? Well, in short, it's an indicator that more and more homes will move toward solar adoption as a way of balancing grid dependency as we shift to higher electrical demand in our homes. We’ll also likely see an increase in grid-connected solar power systems, which connect home solar panels directly to the grid, allowing property owners to reduce their electricity bills by selling excess power back to the grid for use elsewhere — cha-ching!
Ready to learn more? Below is a list of resources, tools and additional further reading materials that you may find helpful.
Learn more about the Inflation Reduction Act (IRA)
Find out if you qualify as a low- or moderate-income household
Learn more about the Clean Vehicle and Previously-Owned Clean Vehicle tax credits
Learn more about the International Energy Conservation Code (IECC)