How to Plan Around the Inflation Reduction Act’s Rollout

Green Homeowners United has been closely watching and reading the new law that passed in August 2022, the Inflation Reduction Act. This law has huge impacts for the effort to green our homes and buildings! However, while we have had some attention on us for our efforts to help people take advantage of the law’s benefits, we want to highlight that some of the incentives are not available as of this post (written January 2023, edited for updates June 2023) and we have been told by inside sources that they won't be retroactive. So this post is to help inform what is available now, and how to prepare.

First, the IRA has three major incentives for homeowners (plus commercial ones we will talk about another time): tax credits for upgrades, rebates based on energy assessments (HOMES), and rebates for electrification upgrades (HEERA).

First off, the difference between a tax credit and a rebate:

• Tax Credit – a dollar-for-dollar reduction on what you owe in federal taxes. You will claim and receive this when you file your taxes later

• Rebate – a reduction on the sticker price of the project, either immediately removed from an invoice or mailed to you in a short time period.

And while the tax credits are available as of this writing, the rebates are not yet.

It is important to highlight, these incentives (both rebates and tax credits) will be around for the next 10 years, so you have time to utilize them! That being said, it does appear the rebates will be first-come, first served, and will eventually run out. Likely before the 10 years is up. So plan ahead!

Each of these topics can go into a LOT more detail on (and we will), but the short versions:

Tax credits – AVAILABLE NOW

• $1,200 per year max (30% of material cost) for a combination of insulation, air sealing, windows, doors, furnaces, boilers, water heaters and air conditioners. Note, certain rules apply on each. Up to $150 tax credit on an energy assessment.

• $2,000 per year max on air-source heat pumps or heat pump water heaters

• 30% of the cost of geothermal heating, solar panels, and a few other renewable upgrades. No maximum

Rebates – ESTIMATED MID-2024

• $2,000 off (or 50% of total, whichever is less) off any collection of improvements found by an energy assessment would reduce energy use by 20% (or $4,000 off if moderate income)

• $4,000 off (or 50% of total, whichever is less) off any collection of improvements found by an energy assessment would reduce energy use by 20% (or $8,000 off if moderate income)

• Up to $14,000 off a collection of electrification projects such as installing heat pumps (aka an air conditioner that can both cool and heat a home), heat pump water heaters, heat pump dryers, electric service upgrades and more. (HEERA)

And please note, this is just the new federal rebates, there are often Wisconsin Focus on Energy state rebates for other upgrades!

It is unlikely if you’ve already installed something that it will count for rebates (however, it could apply for tax credits). And because these incentives will be around for 10 years, and some benefitting you yearly, here’s what we recommend:

2023

First things first, get an energy assessment of your home! First, you will qualify for an up to $150 federal tax credit just from having an assessment performed on your home. It will also help you determine the best way to access the $2,000-$8,000 rebates from the HOMES program so you can be early in line once they’re fully available!

Consider taking advantage of Focus on Energy rebates for things like attic insulation/air sealing. Currently Focus provides between $1,200 - $1,800 in rebates for air-sealing & insulating an attic. At this time it isn’t 100% clear if these can stack with HOMES rebates for the same project! So to qualify for both you may want to break the projects up.

But wait! Wouldn’t insulating my attic help me achieve the 20% reduction that would unlock $2,000+ in federal rebates? Yes it could, but either way it still will be possible to reduce energy use by 20% (20% of a smaller number is a smaller goal to hit through additional improvements). So, for example, you could qualify for $1,200 in Focus on Energy rebates for attic insulation & air sealing in early 2023, then utilize the HOMES rebates $2,000+ off for additional energy saving improvements like sealing ductwork, insulating basement walls or replacing single pane windows.

Consider upgrading a few windows to Triple pane, ENERGY STAR models. There is a new $600 annual federal tax credit for low u-factor windows, but it tends to cap out after a few windows. Consider just having a few windows installed each year, and you’ll qualify for the $600 tax credit each year!

Between insulating, windows and/or energy assessments, you’ll likely qualify for $1,200 in tax credits in 2023!

2024

It is expected that by mid 2024 the HOMES & HEERA rebate programs will be available, or close to it. Implement what was recommended by your energy assessment to utilize the $2,000 - $8,000 rebates for what was found to reduce energy use by 20% or more.

Consider an air-source heat pump or heat pump water heater too, with thousands off the cost of installing them and up to $2,000 in tax credits specifically for heat pumps on top of the $1,200 you’ll also have available for other upgrades made in insulation, air sealing, HVAC, windows and more. Your energy assessor can help you find out what to expect with heat pumps in your home.

2025 and Beyond

Once you have looked at where you can upgrade the building’s envelope (what keeps you separate from outside), and you are starting your path down electrifying devices like heat pumps, induction ovens, etc to get off of gas. Consider looking at solar panels to start to source your electricity from renewable sources. You’ll qualify for 30% federal tax credit for solar, window and geothermal systems you install.

Why wait until now? Why not install solar in 2023? Well, while you could install solar panels first, we recommend that you FIRST seal and insulate the home, SECOND install electric heat pump heating when it is easier to heat/cool the better insulated/sealed home, and THIRD get solar panels able to handle the new electric need you have from heat pumps, induction ovens, electric vehicles, and more. Otherwise your solar panels may not cover all of your electric bill.

From here we encourage you to continue upgrading your home piecemeal to take advantage of the $1,200 per year federal tax credit. Consider continuing to upgrade windows to triple pane, consider replacing to energy efficient exterior doors, consider continuing to further air seal the home, etc.

All together you should maximize the new federal incentives to qualify for thousands in rebates and thousands more in federal tax credits over multiple years! All to make your home more comfortable, reduce carbon emissions to protect the planet, and to reduce your utility bills!

So, what should you do first? Get an energy assessment to find out where to start in your home.

-- Kevin Kane, Chief Economist, Green Homeowners United