Commercial and residential buildings account for about 13 percent of greenhouse gas emissions. That might not sound like much, but it’s something that many of us can feasibly reduce by making our homes and businesses more energy efficient. President Biden’s monster bill, The Inflation Reduction Act, helps us to do just that. Tax credits and rebates financially empower us to make improvements we’ve probably been wanting to make.
The tax credits will apply to purchases made on January 1 of 2023 and thereon until the end of 2032, but you won’t actually receive any credit until you file for your taxes in 2024. The rebate program will become operative sometime in 2023, depending on how quickly your state government implements it. So if you hear anyone complaining about how the IRA hasn’t reduced inflation yet (and amazingly enough I have heard some Republican pundits doing just that), feel free to remind them that it hasn’t gone into effect yet. Not that it will have an instantaneous effect.
The difference between tax credits and rebates are pretty much what you’d think. Credits are deducted from the taxes you owe. People who owe little or no taxes are better off participating in the rebate program. Rebates are everyone’s favorite, of course. At the point of sale, you should be able to apply the rebate to the purchase. No delayed gratification!
The Energy Efficient Home Improvement Tax Credit program has been around for a long time, but the IRA increased its cap from a one-time $500 to $1,200 that you can potentially claim every year until the end of 2032. This covers new doors and windows, home energy audits, electric panels and other measures that increase energy efficiency. If you want heat pumps or hot water heat pumps and your income is high enough that you don’t qualify for the rebate program, you can get a tax credit of $2,000 for those appliances.
When you’re claiming a tax credit on your tax return, you don’t have to provide documentation of your purchase, but you better keep receipts where you can find them in case you’re audited.
Now for the rebates. There is $1,600 available for insulating and sealing your building. You get up to $8,000 towards the purchase and installation of heat pumps. (Our heat pump system at home cost a total of $7,600, but that was about ten years ago.) There’s also $1,750 for a heat pump water heater—that should cover the purchase of the water heater but not the installation. $840 is available for people who buy a heat-pump clothes dryer; same for purchasing an electric stove, including induction ranges.
All this electric stuff might require an electrical panel upgrade, so there’s up to $4,000 available to help with that. All these rebates add up. Homeowners can collect up to $14,000 between whenever the program gets up and running in your state and September 30, 2031.
California will probably be one of the first states to implement the rebate program. I imagine there will be a lot of publicity when that happens. Start thinking and planning now. Making our residential and commercial buildings as energy-efficient as possible reduces our footprint and also makes energy-efficient appliances more popular and competitive. A future column will investigate recycling and repurposing our old stuff.