By Rachel Koning Beals
Changing out gas furnaces for heat pumps and other home-efficiency moves incentivized with a federal program will get easier later in the year
It’s true, Inflation Reduction Act (IRA) rebates and tax incentives for home electrification kicked in Jan. 1 officially, but several program features won’t be available to homeowners until the end of the year or early 2024, according to the Department of Energy.
There are a few key exceptions: select electric heat pumps, for one. Rooftop solar(ICLN) and home battery storage also already qualify for federal assistance via the IRA and can often be layered onto select state or utility programs that each homeowner should check out. Here’s a list.
Why the delay for some programs?
The federal government’s $4.3 billion in home electrification and efficiency rebates will be distributed through state energy offices. That means 50 individual programs need to be designed and implemented to comply with federal regulations. State manpower can vary and some, more than others, have dedicated energy and environmental staffs.
The programs reserve the incentives for families earning up to 150% of their area’s median household income. The federal government wants rebates to be deducted at the time of purchase — an instant discount widens electrification’s appeal versus applying it only through tax credits. But this also requires a unified system to verify a buyer’s eligibility, thus the months-long implementation process. Other program features are relegated to tax-filing season, so homeowners might do their research ahead of buying.
You can read up on the federal program, including savings amounts, on the Department of Energy’s EnergyStar site.
Homeowners may also wonder if their contractor is up to speed. Residential and commercial-building renovation and construction professionals may shy away from certain projects until their own experts are well-versed on programs. True enough, others may jump at the increased business. It’s best to express interest in the rebate and tax credit programs as you negotiate a job.
The late 2023-early 2024 incentive target is particularly grating news for homeowners whose fossil-fuel furnace or nat gas-powered hot water heater might die in the meantime and need a replacement.
And there’s more potential timeline frustration: Earlier 2023 purchases will not qualify for breaks retroactively.
“Given that states must establish programs that ensure compliance with the law (e.g., eligibility of household, technology, program reporting), it will be difficult to offer rebates for projects completed before program requirements are fully defined and programs are in place,” the DOE’s Office of State and Community Energy Programs says on its site. “The law does not authorize states to offer home electrification rebates retroactively.”
Which electrification incentives are good to right now?
The IRA includes a $2,000 federal tax credit for select, basic heat pumps, which can be taken now. Some states and utilities also offer their own rebates.
“Heat pumps are a great technology to provide more efficient heating and cooling in your home, save you money and protect the climate. And they’re even greater now that the Inflation Reduction Act can help you offset the upfront cost,” said Rewiring America Special Projects Program Manager Joel Rosenberg.
Plus, a 30% tax credit for residential solar panels and related equipment is already active; in fact, it is retroactive to 2022. And a tax break for battery storage systems, which can add to the resiliency of home solar power, is already in effect. .
For now, homeowners who can wait might do so, as the rebates and tax breaks that come with the IRA’s home-electrification program can be significant. They include a greater $8,000 rebate for heat pumps that can warm and cool homes, an amount that could cover roughly half the installation costs of some systems. There’s also a $1,750 rebate for heat pump water heaters and $840 for heat-pump clothes dryers.
The potential savings over the lifetime of electric heating and cooling, especially places that require several days with heat or AC, can be significant.
Valeria Rincon, a policy official in the Chicago office of the Natural Resource Defense Council, estimates that for U.S. spots with weather extremes “cost savings over a 20-year period are projected to be upward of $15,000 for all-electric new construction and $10,000 for existing multifamily households that fully electrify. Savings are even higher for single-family homes.”
“Full electrification yields such great cost savings because consumers avoid paying for both the cost of gas as a commodity and fixed monthly charges,” she added. “Switching to electricity would also significantly cut greenhouse gas pollution coming from our homes — by at least 30% in the first year alone.”
For remodelers or new-home hunters already enticed to opt for an electric stove and cooktop, especially as high-tech induction options gather interest, they can act sooner versus later. Available to tap: $840 cash back for electric induction stoves and $4,000 for electrical system upgrades for the home.
Although the nation has mixed emotions given its love affair with gas stoves and cooktops, new electric induction arguably has as much temperature control as very popular gas options and turn cool to the touch as soon as specialized cookware is removed from the “burner” unlike older iterations of electric. Currently, about one-third of U.S. homes use gas stoves and cooktops, which means a majority is already using electric. Consumer Reports has dedicated new reviews to the potential health and safety advantages as well as the cooking performance and relative costs of electric ranges and stoves over gas options.
Related: Gas-stove ban: As U.S. moves closer to action, cooks want to know, ‘What’s the real risk?’
Here’s some big-picture good news. The rebates worth up to $14,000 in all to lessen the cost of decarbonizing a home are expected to be available for the next decade, at least as long as they have budget backing. And while Republicans largely did not sign on to the Biden-pushed IRA, its tax incentives thematically align with a GOP propensity to favor tax relief.
Just how ‘green’ are these efforts?
The IRA is a broad spending bill that featured the most incentives ever for homeowners to upgrade their heating and cooling, lighting and appliances. The intention is to gradually move American homes away from natural gas or heating oil toward electric power on the way to a net-zero-emissions economy in a few years. .
President Biden, against some political pushback, is trying to set the country on a course to halve its total atmosphere-warming greenhouse gas emissions by 50% as soon as 2030 and in total by 2050. These are targets largely in line with those set in the rest of the industrialized world.
As some policy officials like to point out, a major necessity in making the whole endeavor as “green” as possible is adding more solar, wind, hydrogen and nuclear to power the grid. Electricity is only as green as its inputs. Already, the U.S. grid had reduced emissions when natural gas increasingly replaced coal power, and as the solar and wind already in use grew most cost-effective. But environmental groups, scientists, policy groups and increasingly, younger American consumers and voters want efforts to go further. An aged grid will also have to be upgraded to assure it can handle new demand from increasingly electric homes and businesses, other power experts stress.
In all, the full implementation of various IRA programs meant to encourage adoption of green technology is still being ironed out.
That includes tax credits for electric vehicles(GM)(TSLA), which have run into a trade-relations snag as they upset some European and Asian manufacturers who would see their U.S. markets shrink because the IRA gives preference to North American-made batteries and assembly, for instance.
As passed, the law calls for a conditional $4,000 tax credit for used EVs, the first time that previously owned EVs can earn some tax relief, and $7,500 for new options that qualify. What’s more, a tweak to original IRA language means leased EVs now get a break, too.
The IRS has a fact sheet of frequently asked questions about the tax credits.
-Rachel Koning Beals
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