Heat Pump Incentives in the Inflation Reduction Act of 2022

With the recent passage of the Inflation Reduction Act of 2022 (“the IRA” or “Inflation Reduction Act”), there has been a lot of interest and questions around how the IRA can help homeowners that are considering to install a heat pump for their home.

With tax credits of up to $2,000 for qualifying heat pumps, as well as rebates of up to $8,000 for low and middle-income households, the IRA has a number of incentives for green home improvements that homeowners can take advantage of.

  1. The Energy Efficient Home Improvement Credit

  2. High-Efficiency Electric Home Rebates

  3. Home Energy Performance-Based Whole House Rebates (HOMES Rebates)

Read on to find out some of the key takeaways around IRA incentives for installing a heat pump in your home.

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Energy Efficient Home Improvement Credit

What is the Energy Efficient Home Improvement Credit?

The Energy Efficient Home Improvement Credit is a tax credit for homeowners to make green home improvements in the IRA. For qualifying projects, it reduces an individual or household’s income tax liability, dollar for dollar, up to a prespecified amount. Technically speaking, it is a tax credit under section 25C of the tax code.

How much is the credit worth?

Qualifying heat pumps are eligible for a tax credit of up to $2,000.

The annual limit on the total tax credit amount for qualifying green home improvements is capped at $1,200 or 30% of the cost of qualifying improvements, whichever is lower. However, there is an exception for qualifying HVAC (including heat pump) projects, which have a cap of $2,000. That means that for this category only, the $1,200 annual limit can be exceeded. There is also no lifetime limit on the amount of credit that can be claimed.

When does it go into effect?

The credit goes into effect for qualifying projects starting in 2023. The expenditures related to qualifying projects need to be paid or incurred by the taxpayer in the relevant tax year to claim the credit.

Are there any income requirements?

There are no income requirements for the tax credit and it is available to anyone.

Do all heat pumps qualify?

A heat pump needs to be a high efficiency model in order to qualify for the tax credit. Read more about efficiency standards and qualifying models here.

Can I get a refund for the tax credit?

No. These tax credits are not refundable, meaning you need to have a tax liability in a given year in order to take full advantage of it.

Are there other requirements I should be aware of?

Starting from 2024, the individual or household claiming the tax credit needs to include the product identification number that the manufacturer assigns to a system on their tax return in order for a project to be eligible for the credit.

How long will the tax credits be around?

They are in effect through 2032.

High-Efficiency Electric Home Rebates

What is the High-Efficiency Electric Home Rebate Program?

The program will provide rebates to low- and middle-income families that purchase energy-efficient electric appliances. The program is separate from tax credits.

What are the income criteria to qualify for the program?

A household needs to qualify as either low-income or middle-income to receive the rebate. Low-income households get larger amount than middle-income households.

  • Low-income households are defined as households where the annual income is less than 80 percent of the area median income*

  • Middle-income households are defined as households where the annual income is between 80 percent and 150 percent of the area median income*

    *As reported by the Department of Housing and Urban Development

How much can a household receive for a heat pump under the program?

  • Low-income households can qualify for rebates of up to $8,000 for a heat pump. The amount cannot exceed 100% of the cost of the heat pump.

  • Middle-income households can also qualify for rebates up to $8,000 for a heat pump. However, the amount cannot exceed 50% of the cost of the heat pump.

Are there other limitations I should be aware of?

Yes. Each qualifying family will also be limited to no more than $14,000 in total rebates for qualifying improvements under the program. Furthermore, it cannot be combined with any other Federal grant or rebate.

Can I combine the High-Efficiency Electric Home Rebate Program and Energy Efficient Home Improvement Credit?

Yes. The IRA does not have a prohibition between the rebate programs and the homeowner tax incentives. Therefore, one should be able to get both.

Can I combine the High-Efficiency Electric Home Rebate Program and the HOMES Rebate Program?

No. The IRA prohibits using both the High-Efficiency Electric Home Rebate Program and the HOMES rebate programs together.

Are there additional requirements and how do I get these rebates?

The details are still being worked out and will become available in due course. The High-Efficiency Electric Home Rebate Program will be administered by each State’s energy office or tribal government, which will establish their own qualifying programs in accordance with the contents of the IRA.

When will the rebates be available? How long will the rebates be around?

The rebates are expected to become available in 2024. The IRA has appropriated $4.5 billion dollars total for the High-Efficiency Electric Home Rebate Program through September 2031.

Home Energy Performance-Based Whole House Rebates (HOMES Rebates)

What is the HOMES Rebate Program?

While the program does not specifically target heat pumps, it provides rebates for homeowners that undertake whole-house energy saving retrofits that reduce their homes’ energy consumption. The program is separate from tax credits.

Are there income qualifications for the HOMES Rebate Program?

There are no income thresholds to qualify. However, individuals and households that are low or moderate income (LMI) can receive higher amounts under the program.

For the HOMES Rebate Program, LMI is defined as an individual or family whose total annual income is less than 80% of the area median income where the individual or family resides, as reported by the Department of Housing and Urban Development.

I qualify as low or moderate income. What are my rebate amounts?

The amount of the rebate you can receive will depend on the amount of energy your home saves.

  • For home retrofits that provide a 20% ~ 35% reduction in energy consumption, you can receive up to $4,000.

  • For home retrofits that provide an over 35% reduction in energy consumption, you can receive up to $8,000.

  • For home retrofits with measured energy savings, you can receive up to $4,000.

In all cases, the rebate amount cannot exceed 80% of the cost of the retrofit.

I do not qualify as low or moderate income. What are my rebate amounts?

The amount of the rebate you can receive will depend on the amount of energy your home saves.

  • For home retrofits that provide 20% ~ 35% reduction in energy consumption, you can receive up to $2,000.

  • For home retrofits that provide over 35% reduction in energy consumption, you can receive up to $4,000.

  • For home retrofits with measured energy savings, you can receive up to $2,000.

In all cases, the rebate amount cannot exceed 50% of the cost of the retrofit.

Can I combine the HOMES Rebate Program and Energy Efficient Home Improvement Credit?

Yes. The IRA does not have a prohibition between the rebate programs and the homeowner tax incentives. Therefore, one should be able to get both.

Can I combine the HOMES Rebate Program and the High-Efficiency Electric Home Rebate Program?

No. The IRA prohibits using both the High-Efficiency Electric Home Rebate Program and the HOMES rebate programs together.

Are there additional requirements and how do I get these rebates?

The details are still being worked out and will become available in due course. The HOMES Rebate Program will be administered by each State’s energy office, which will establish their own qualifying programs in accordance with the contents of the IRA.

How long will the rebates be around?

The IRA has appropriated $4.3 billion dollars total for the HOMES rebate program through September 2031.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. E-Den Home Electrification, Inc. makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information contained on the website. E-Den Home Electrification Inc. assumes no responsibility for any errors or omissions in the content of this website or such other materials or communications. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content on this website. We may amend, update or otherwise change, at any time and without notice, any or all of the contents and information contained on this website.