On August 16, 2022, President Joe Biden signed the Inflation Reduction Act (IRA) of 2022 into law. As outlined, the IRA will invest $369 billion in clean energy sources and technologies that improve efficiencies.
The government is seeking to transition to clean energy sources. By switching to heat pumps, homeowners can move away from gas burning furnaces. The government is offering significant rebates and tax incentives to homeowners who purchase heat pumps.
All of the details have yet to be worked out but this is what has been revealed thus far (as of April 2023). We have pulled together these details from several sources (follow the links) including Frequently Asked Questions from Energy.gov.
IRA Tax Credits
As of January 1, 2023, any homeowner with tax liabilities can take advantage of tax credits up to $2,000 on qualifying heat pumps. As reported by Energy Star the IRA tax credits can be coupled with other qualifying Efficiency Tax Credit products/services for a max of $3,200 / calendar year.
It’s important to consult with your accountant to ensure you are maximizing your 2023 tax credits.
IRA Heat Pump Rebates
The Department of Energy (DOE) is due to publish the guidelines for the IRA Rebates by Summer 2023. Once rolled out, each State has 2 years to submit their applications through the State Energy Program Grant for approval. The amount awarded to each state will be based on population size.
There are two (2) different rebate programs:
- High Efficiency Electric Home Rebate Act (HEEHRA) - a $4.5B program
- HOMES Rebate Program – s $4.3B program
The HEEHRA rebates appears to be a point-of-sale consumer rebate for low and moderate-income households. Though as we stated, the details are still being worked out.
You can get extensive details on HEEHRA and calculate your rebate eligibility here.
These are the highlights:
- 10 year program
- Rebates are for qualified electrification projects
- < 80% below your area’s median income = up to $8000 in rebates for a new heat pump
You can use this tool from Fannie Mae to understand your area’s median income.
According to hvac.com, it’s estimated that middle-income households will save an average of nearly $2,900 on a new heat pump while above-middle-income will get an average tax credit of over $1700.
HOMES Rebate Program
The HOMES Rebate Program is based on the efficiency gains of a package of improvements, not a single improvement.
- Requires a 3rd party certification using BPI 2400 compliant software showing the efficiency gains
- 20%-34% efficiency gain = $2000 savings
- 35%+ efficiency gain = $4000 savings
- Savings can be doubled if at or below 150% average medium income (AMI)
Choosing The Right Heat Pump For Your Environment
When choosing to take advantage of the IRA rebates or tax incentives, you will need to meet the CEE Directory of energy efficient equipment. To determine the efficiency of your heat pump, look at the SEER rating on the Energy Guide sticker.
SEER is a rating system in which the higher the rating the more efficient the system. Air conditioners and heat pumps fall into three categories based on their SEER Rating:
- Entry-level efficiency: 13-14 SEER
- Mid-efficiency: 16-18 SEER
- High-efficiency: 20+
As of January 1, 2023, the minimum rating for residential air conditioning systems changed. You can read about the changes in our article New HVAC Guidelines 2023.
We Are Here To Help
If you are confused about SEER ratings, or you want to know if now is the right time to replace your system, or how to best plan for a replacement, call the experts at Presidential Heating and Air Conditioning. We have been advising the residents of Montgomery County, MD since 1982. Call us today at 301.265.5213 or schedule an appointment online.
*The information in this article is subject to change. While the 2023 benefits of Section 25C are known for the 2023 tax year and beyond, the criteria to qualify for credit(s) are not yet finalized by the IRS and the above is subject to change based on whether the IRS will adopt the full CEE Criteria. Furthermore, the DOE has yet to finalize the IRA rebate guidelines.