Americans will soon have the opportunity to fight climate change, reduce their bills, make their homes more modern and comfortable, all while saving money. This is the idea behind the Inflation Reduction Act tax credits and refunds.
The IRA means big-ticket items like electric and induction cookers, solar panels, insulation and heat pumps could soon be much cheaper for many households.
Climate-friendly shopping has a reputation for being a luxury – high-end shopping that not everyone can afford. But that is changing, and now going green can also save you green in many cases.
These rebates and tax credits don’t just save you money now, they can also save you money in the long run as your new energy-efficient products lower your bills.
Here’s what you need to know:
What is the Inflation Reduction Act and how can it save me money?
THE landmark legislation was passed in August 2022 and a large part started in January. It includes a host of tax incentives and rebates to help Americans make their lives and homes more energy efficient, cheaper and more comfortable.
But you will need to do some research. This includes checking if you are eligible for some of the incentives, planning your purchases strategically, and following instructions on how to claim valuable tax credits and rebates. And don’t forget to keep your receipts!
To see what you qualify for, the nonprofit organization Rewiring America offers an easy-to-use tool. website who will run the numbers for you.
How does climate change affect you?: Subscribe to the weekly Point Climat newsletter
LEARN MORE: Breaking news on climate change from the USA TODAY
What’s the catch?
There are several things to keep in mind:
- Eligibility criteria: Some – but not all – of the incentives limit who can use them, most on income and some on geography.
- The benefits may be limited by the amount you pay in taxes: Many of the incentives come in the form of “non-refundable tax credits”. This means that you cannot recover more money in tax refunds than you actually owe in taxes.
- The good news: You can potentially reduce your federal tax bill to zero and get a huge refund with non-refundable tax credits.
- The bad news: Low-income people who pay less tax have fewer opportunities to take advantage of credits. For example, someone who only pays $4,000 in taxes can only use $4,000 in credits, which is less savings than someone who pays $7,000 in taxes has access to.
More:What is a federal tax credit? Get to know how it works, what differentiates it from deductions
This type of tax refund tends to favor middle- and upper-income families, said Sage Briscoe, senior federal policy officer for implementation with Rewiring America, an electrification nonprofit.
On average, in 2020 Americans with adjusted gross income between $50,000 and $75,000 paid $4,567 in taxes, according to the IRS. Those who earned between $75,000 and $100,000 paid $7,363.
A silver lining: For solar power, battery storage, and geothermal power, you can carry forward any remaining portion of the money-saving credit on your subsequent years’ tax returns until it is used up or the law changes, whichever comes first.
Big savings on electric vehicles
- You can save thousands of dollars on a new EVif you do your research.
- But it’s a confusing mess: It is so complicated that it is treated in a complementary article to this one. But the huge savings are probably worth it, if you’re in the market for a new car.
LEARN MORE:EV buying guide
Get $150 off an energy audit
To determine what is best for your home and situation, do an energy audit of qualified supplier. This is an assessment that tells you how much energy your home uses and suggests solutions to save energy and money.
The IRA offers a tax credit of $150 per household for home energy audits. There are no income restrictions, but the household must pay at least $150 in taxes to take advantage of the credit.
Get 30% off on installing solar panels
The IRA includes a 30% tax credit on the purchase and installation of home solar panels, battery storage and geothermal systems. There are no income restrictions and no maximum amount that can be claimed.
The average rooftop solar installation costs about $20,000, so the tax credit would be about $6,000. Note that a family paying $4,000 in federal tax would only get a tax credit of $4,000, but not the full $6,000.
Save up to $2,000 on a residential heat pump and water heater
Heat pumps are much cheaper heating/cooling systems to operate than air conditioning and a furnace, but cost more upfront. Installing one can cost between $600 and $20,000 depending on the type, region and home.
THE IRA credit covers 30% of purchase and installation cost, up to $2,000 for qualifying heat pumps. There are no income restrictions, but a household cannot get a tax refund for more than it owes in taxes that year.
It also covers new ultra-efficient heat pump water heaters that use up to half the energy of conventional water heaters and can be 400% more efficientaccording to the Natural Resources Defense Council.
These are purchases you need to think about before your current water heater, furnace, or air conditioner breaks down. Some parts of the country are experiencing delays in purchasing and installing new energy-efficient options, said Paul Hope, senior home and appliances editor at Consumer Reports.
This means that if you are considering buying one, consider replacing your current heating and air conditioning system before it breaks down, as it could take weeks or even months to get a heat pump and install it.
Improve your windows, doors and insulation
A well-insulated home with well-fitting windows and doors goes a long way to saving money on heating and cooling, as well as making your home more comfortable.
The IRA offers an annual report tax credit of up to $1,200 for an electrification rebate or energy efficiency upgrades of up to $1,600, depending on income.
The tax credits can be used annually, “so you can replace a few windows one year and more the next year,” Briscoe said. The total rebate on all qualified electrification projects is not capped until you reach $14,000.
Buy a new electric range or clothes dryer
For appliances, the IRA offers a refund, not a tax credit, which makes the process easier, although there are income limits.
Depending on your income and possibly the state you are in, you could receive a rebate of up to $840 for a new electric range, induction cooker or the new electric heat pump dryers that do not require ventilation.
These rebates are available to households that represent up to 150% of their local median income. Check the Rewiring America website to see if you qualify.
There’s a caveat – the discounts aren’t expected to arrive until the second half of the year as the details are still being worked out.
“Hopefully it’s as simple as when you go and buy an electric or induction range at Home Depot or Lowes, they’ll automatically give you $840 off,” Hope said.
The tricky part is how income eligibility for the full $840 refund will be determined. You will need to check with your local appliance dealer to find out.
If your home’s electrical wiring is not sufficient to run a new electric range and/or clothes dryer, there is potential rebates of up to $4,000 depending on income. There is also some tax credits available. These aren’t expected to be available until late 2023 and aren’t retroactive, Briscoe warns.
“If a contractor tells you that you can claim reimbursement after the fact, that’s not true,” she said.
If not, how can I save money?
There are many state and even county and city credits available. Rewiring America the website also includes these.
You can also consult the State Incentives Database for Renewable Energy and Efficiency for more information on possible local incentives.