Leveraging HVAC Rebates & Tax Credits Following the Inflation Reduction Act

Did you know there’s a way to improve your home, reduce your energy bills, and save money in the process? 

No? It’s time to learn how to leverage a new air conditioner rebate: the Inflation Reduction Act.

In today’s article, our team at Diamondback will go over the ways you can leverage the Inflation Reduction Act.

What is the Inflation Reduction Act?

The government passed the Inflation Reduction Act in August 2022. It includes $500 billion in new government investments as well as personal and business-related HVAC rebates and tax benefits. The overall goals of the Inflation Reduction Act are to promote clean energy, lower healthcare costs, and raise tax receipts. 

As part of the goal to promote cleaner energy production, the Inflation Reduction Act allocates almost $400 billion in federal funds to clean energy to significantly reduce our country’s carbon emissions by the end of the 2020s. These federal funds will be distributed through a combination of tax breaks, grants, and loan guarantees. 

Clean electricity and transmission get the lion’s share of the funding, followed by clean transportation, including electric vehicle subsidies.

How Does the Inflation Reduction Act Benefit Homeowners?

The Inflation Reduction Act benefits homeowners by providing federal HVAC tax credits to offset the cost of home improvements or upgrades that make a home more energy efficient. From now until 2032, you can claim back up to $3,200 annually to lower the cost of your upgrades by up to 30%.

The act also funds a range of grants that will provide money to homeowners who decide to implement specific energy efficiency measures.

However, only some home improvements qualify for federal tax credits or grants. If you plan to make the most of the provisions in the Inflation Reduction Act, it is essential to know exactly what each program provides.

Energy Efficient Home Improvement Credit

From January 1st, 2023, the Energy Efficient HVAC tax credit has provisions for the following:

Energy Audits

According to Energy.gov, you can reduce your energy audit cost by up to 30% or up to $150 if you hire a qualifying energy auditor. After the audit, your auditor must give you a full written report that details the most cost-effective energy-saving improvements for your home. 

Alongside the most significant improvements you can make, the audit report must also detail an estimated energy saving and cost saving for each.

Before employing an auditor for your home energy audit, check with the IRS to ensure your chosen professional meets all requirements for the program; otherwise, you may not qualify for your HVAC or air conditioner rebate.

Once you have your home energy audit results, you can claim up to 30% of the cost of weatherizing your home, up to a maximum of $1,500. This includes items such as caulking gaps in baseboards, weather stripping, etc.

Energy Star “Most Efficient” Certified Skylights

If you replace an existing skylight with a new one from the Energy Star Most Efficient list, you can claim up to $600 in tax rebates on HVAC systems.

Energy-Efficient Exterior Windows and Doors

The Inflation Reduction Act has a provision for homeowners to claim up to $250 for replacing an external door and up to $600 for replacing existing windows with energy-efficient alternatives.

You can claim this amount every year, so, for example, you could buy new windows for one room in year one, a second room in year two, and so on, claiming your $600 tax credit every year.

Heat Pumps

With the Energy Efficiency Home Improvement Credit, you can claim up to 30% of the costs of heat pumps, biomass stoves, and boilers with a thermal efficiency rating of at least 75%. This tax credit is capped at $2,000 per year. When calculating the cost of these items, you can include the installation cost.

Central Air, Boilers, and Heaters

Some residential energy items that meet the highest tier of the Consortium for Energy Efficiency (CEE) qualify for up to $600 in tax credits. You can include the installation costs when you factor in how much you have paid. 

The items covered include:

  • Oil, propane, or natural gas hot water boilers.
  • Oil, propane, or natural gas water heaters.
  • Central air conditioners.

So, according to the IRS, the maximum Energy Efficient Home Improvement Credit you can claim each year is:

  • $1,200 for specific energy-efficient home improvements and energy property costs, with limits on doors ($250 per door and $500 total), home energy audits ($150), and windows ($600)
  • $2,000 per year for qualified heat pumps, biomass boilers, or biomass stoves

Electric Panel Upgrade Tax Credit

Homeowners can claim a tax credit when they upgrade their current electrical panel. To qualify for the credit, the new panel must:

  • Have a load capacity of 200 amps or more.
  • Be installed in a way that meets the National Electric Code.
  • Be upgraded and installed at the same time as another energy efficient upgrade, for example, heat pump, central air conditioning, water heater, biomass stove, or boiler.

Residential Clean Energy Credit

If you install a sustainable energy system in your home, you might qualify for an annual tax credit under the Residential Clean Energy program. 

There is no upper limit on the costs you can claim – except for the cost of fuel cells or batteries, but you cannot use the credit to get a tax refund. Instead, you can carry your tax credit forward to subsequent years.

Qualifying items include:

  • Geothermal heat pumps
  • Solar water heaters
  • Wind Turbines
  • Solar electric panels
  • Battery storage technology
  • Fuel cells

Eligible costs include the cost of labor for site preparation, installation, and connection to your home system. Solar roof tiles or shingles also qualify, but regular shingles or regular roof trusses do not.

Before You Begin

The Inflation Reduction Act provides tax credits and air conditioner rebates for a wide array of home energy improvements. To qualify, you must be doing work on your primary residence, and equipment must be purchased brand new – leasing items or second-hand items do not qualify.

If you are considering claiming under any of these programs, visit the IRS site first to ensure any professionals or equipment you are considering qualify for the rebate. You can also contact our team at Diamondback to learn more.

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