One of the amazing parts of the Democrats’ Inflation Reduction Act (IRA) is the host of clean energy savings it offers households, and the time is coming to take advantage. The new law includes not just expanded tax credits but also upfront discounts that will allow households to cut their emissions and save money at the same time—but only if people take advantage of the new programs. While you should wait for your state to finalize its rules around IRA programs, probably later in the year, now is the time to learn what’s going to be available to you and start planning. Check out this savings calculator from Rewiring America to find out how much you can save.
Households will save $1,800 a year on average by switching to heat pumps for their furnace and water heater, an electric vehicle, and solar energy. That’s a nice annual savings, but only if you can afford to make those switches. That’s where the IRA’s clean energy programs come into play. It offers rebates of up to $1,750 for that heat pump water heater, up to $8,000 on installation of a heat pump for heating or cooling the home, up to $840 apiece for an electric stove and heat pump clothes dryer, and up to $4,000 for a used electric vehicle and $7,500 for a new one. Starting in 2024, those electric vehicle credits will be handled by dealerships at the time of sale.
In many cases, the full amount of the rebates only go to households making less than 80% of their Area Median Income (AMI)—but that means a lot of families that definitely consider themselves middle class. One example offered by Rewiring America is a family of four in Cleveland, Ohio, that’s considered low-income, falling just below 80% of AMI with a $128,000 annual income. That family would get up to $14,000 of electrification costs covered. Households between 80% and 150% of their AMI are considered moderate income and will still get rebates, but in lower amounts.
High-income households won’t get rebates, but they will be eligible for tax credits available to low- and moderate-income households as well. Tax credits on many clean energy investments have increased. Solar, geothermal heat pumps, wind turbines, and fuel cells already had a 30% tax credit. Now they have a lot of company.
- Battery storage is now eligible for a 30% tax credit.
- The tax credit on insulation materials has gone from 10% to 30%.
- Heat pumps, heat pump water heaters, and biomass stoves are now eligible for a 30% tax credit up to $2,000.
- Efficient air conditioners, heating equipment, and water heating equipment; electric panel upgrades; and windows are all eligible for 30% tax credits up to $600. In each of those cases it’s an increase over what was previously available.
Another reason to be planning ahead is that those $2,000 or $600 limits are annual. You can get up to that limit in 2023 and then again in 2024.
While most of the provisions here are for homeowners, renters can take advantage of some of them by investing in portable devices they can move from rental to rental if necessary. That includes window-unit heat pumps, induction cooktops or stoves, and more. In a world in which landlords are halfway on the ball about these incentives, renters should also benefit from rental housing getting energy upgrades and new weatherization. That’s a bigger question mark, though.
Again, check out the calculator to find out what programs are available to you, with information on timelines. If you’re eligible for rebates, you’ll have to wait for your state to figure things out. If you’re only looking at tax credits, you can get moving now ahead of demand—though there’s a chance that if you wait, your state might sweeten the pot on those credits.
We always say that individual consumer decisions are not the way to make big change, that policy change is necessary. This is both at the same time (and the IRA includes separate incentives for developers, commercial buildings, and manufacturers), and the potential for reducing emissions is enormous. “Together, these programs will reduce U.S. carbon pollution 40 percent below 2005 levels by 2030, getting us four-fifths of the way to President Biden’s aggressive climate goal,” Rewiring America noted of the IRA’s energy provisions. This is a BFD, and every one of us should be looking into how we can take advantage.