We have two HVAC systems in our home that are likely within the last few years of their working lives.
They’re both A/C only using coolant that’s been “outlawed” (R-22) and were installed in the 1980s. They work fine, with the occasional replacement of their coke can sized capacitors, but we’re getting close to needing to replace them.
I know that there are some high efficiency units available today and spending the $15,000-$20,000 to replace each unit will pay off in efficiency gains over the next twenty years.
I was excited to hear about the Inflation Reduction Act and the various tax credits and rebates they were making available.
Table of Contents
The Inflation Reduction Act, signed into law in 2022, offers $8.8 billion in rebates and tax credits to homeowners and landlords who make energy efficient improvements to their homes. These are primarily improvements by way of new appliances and equipment to lower energy use versions. The Inflation Reduction Act is a federal law so it’s on top of whatever is available from your state.
The IRA extended certain existing tax credits, such as for residential solar and energy efficient home improvements, common referred to as the 25C tax credit. It’s now been renamed the Energy Efficient Home Improvement Credit. These credits were extended and include many of the energy efficient rebates you may be familiar with.
It also created two new provisions, collectively known as Home Energy Rebates:
- High-Efficiency Electric Home Rebate Act (HEEHRA), and,
- Home Owner Managing Energy Savings (HOMES)
You can get a rebate from either HEEHRA or HOMES, but not both.
HEEHRA
HEEHRA provides for up to $14,000 in rebates for qualified electrification projects:
- $8,000 for heat pumps
- $1750 for heat pump water heaters
- $840 for electric stoves
You can also get rebates when you improve your electrical panel, wiring, or improve your home insulation or sealant:
- $4,000 for “electric load service center upgrades”
- up to $2,500 for “electric wiring”
- $1,600 for basic weatherization (insulation, air sealing, and ventilation)
Depending on your income, as compared to the area median income, your incentives can be capped.
- Above 150% of area median income – you are not eligible for these rebates
- 80% – 150% of area median income – rebates capped at 50%
- under 80% – eligible for full benefits
HOMES
HOMES is not income restricted and based on modeled or measured energy savings:
- Retrofits with modeled energy system savings of 35% or more: the lesser of $4,000 or 50% of project costs.
- Retrofits with modeled energy system savings of 20-34%: the lesser of $2,000 or 50% of project costs.
- Retrofits with measured energy savings of 15% or more: the lesser of $100 per percent of energy saved or 50% of project cost.
If you are low income (less than 80% of area median income), incentives are doubled up to 80% of project costs.
States Must Apply & Be Approved
Despite it being a federal program, individual states must apply with their programs and get them approved.
As of April 23rd, only New York has had their application approved and the U.S. Department of Energy has awarded them $158 million for the program. The full details have not yet been released but we list what politicians have been celebrating on their websites!
Arizona, California, Colorado, Georgia, Hawaii, Indiana, Minnesota, New Hampshire, New Mexico, Oregon and Washington have also applied but we expect many others are in the process of applying as well.
We will list the details of each program below as they are released.
How to Find Your Area Median Income
HEEHRA has an income limitation applied to the rebate based on area median income.
The easiest way to find your area’s median income is to use this tool from U.S. Department of Housing and Urban Development. You need to locate your state, then county, and it’ll show you median family income. It’s based on Metropolitan Statistical Areas (MSA) but by searching at the county level, you are shown the MSA’s median income.
State-by-State Breakdown
Right now, only New York has had its application approved. We will add to this list as the details are released.
New York
According to U.S. Representative Paul D. Tonko’s website, homeowners could claim these extended rebates from the Energy Efficient Home Improvement Credit (formerly called the 25C tax credit):
- up to $2,000 for heat pumps, heat pump water heaters, or biomass stoves
- up to $1,200 for other weatherization installs and improvements
- $150 for a home energy audit
- $250 for a new exterior door ($500 total for all exterior doors)
- $600 for new exterior windows and skylights
- $1,200 for insulation
- $600 for an upgraded electrical panel
As for HEEHRA (up to $14,000),
- Heat Pump Air Conditioner/Heater (Up to $8,000)
- Heat Pump Water Heater (Up to $1,750)
- Electric/Induction Stove, Range, or Oven (Up to $840)
- Heat Pump Clothes Dryer (Up to $840)
- Upgraded Electric Panels (Up to $4,000)
- Upgraded Electric Wiring (Up to $2,500)
- Weatherization (Up to $1,600)
And for HOME, it’s the same as the federal examples:
- Retrofits with modeled energy system savings of 35% or more: the lesser of $4,000 or 50% of project costs.
- Retrofits with modeled energy system savings of 20-34%: the lesser of $2,000 or 50% of project costs.
- Retrofits with measured energy savings of 15% or more: the lesser of $100 per percent of energy saved or 50% of project cost.
Conclusion
This will take several years to roll out but we will update this post as the states get their applications in and are approved for the program.
For now, we’re in “wait and see” mode as Maryland gets its application in. We earn more than 150% of our area’s median income so we wouldn’t qualify for HEEHRA. We’d likely be able to take advantage of HOME and improve our energy system savings by 35% or more and get the $4,000 rebate.
It will, however, remain to be seen whether the HVAC companies will increase prices a little to offset the federal rebate!
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About Jim Wang
Jim Wang is a forty-something father of four who is a frequent contributor to Forbes and Vanguard’s Blog. He has also been fortunate to have appeared in the New York Times, Baltimore Sun, Entrepreneur, and Marketplace Money.
Jim has a B.S. in Computer Science and Economics from Carnegie Mellon University, an M.S. in Information Technology – Software Engineering from Carnegie Mellon University, as well as a Masters in Business Administration from Johns Hopkins University. His approach to personal finance is that of an engineer, breaking down complex subjects into bite-sized easily understood concepts that you can use in your daily life.
One of his favorite tools (here’s my treasure chest of tools,, everything I use) is Personal Capital, which enables him to manage his finances in just 15-minutes each month. They also offer financial planning, such as a Retirement Planning Tool that can tell you if you’re on track to retire when you want. It’s free.
He is also diversifying his investment portfolio by adding a little bit of real estate. But not rental homes, because he doesn’t want a second job, it’s diversified small investments in a few commercial properties and farms in Illinois, Louisiana, and California through AcreTrader.
Recently, he’s invested in a few pieces of art on Masterworks too.
Opinions expressed here are the author’s alone, not those of any bank or financial institution. This content has not been reviewed, approved or otherwise endorsed by any of these entities.
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