8 Lingering Questions About the Inflation Reduction Act
Don’t let the title confuse you: here at Energy Circle, we’re very enthusiastic about the tax credits, rebates, and incentives passed into law as part of the Inflation Reduction Act this past summer. Need a refresher? Get a rundown of the IRA essentials here and check out our IRA resource page for more advice and tips on how contractors in the home performance, HVAC, and solar industries can market these new incentives.
But that doesn’t mean we have all the details about when and how these incentives will be implemented. Hopefully, answers will be coming sooner rather than later (and when they do, we’ll update this blog accordingly). Until then, here are the most important questions we’ve heard from contractors and that we ourselves are asking heading into 2023.
1. When Will HOMES and HEEHR Rebates Be Available to Homeowners?
The biggest unknown for the Inflation Reduction Act is when the two new rebate programs—the HOMES (Home Owner Managing Energy Savings) program and the High-Efficiency Electric Home Rebate (HEEHR) program—will be available to homeowners. We’ve heard from multiple sources that rebates should be available in the second half of 2023—but there’s been nothing confirmed at this point and timing will be left up to individual states to determine (as well as whether the rebates will be made retroactive for all 2023 upgrades).
Fortunately, not everything is in a holding pattern: the other major IRA incentive for home performance and HVAC contractors is the revamped 25C tax credit, and projects will qualify starting at the beginning of next year. Plus, the upgraded and extended federal solar tax credit is already live for 2022 projects.
Read: How to Market IRA Tax Credits: Lessons Home Contractors Can Steal from Solar.
2. How Will Homeowners Be Able to Stack Incentives?
When homeowners are trying to understand the incentives available to them, the biggest question is always: “How much will I save in total?” Right now we know for sure that you can’t combine HOMES and HEEHR rebates. Our current best understanding is that households will be able to take advantage of either HOMES or HEEHR rebates and the 25C tax credit. But can the new rebates be stacked with other federal grants or rebates? What about state rebates? Contractors will likely need to wait for official guidance from their states before giving customers concrete rebate totals for services.
3. How Will States Implement Their Individual Rebate Programs?
Nearly $9 billion in HOMES and HEEHR rebate program funding will be allocated by the federal Department Of Energy to individual state energy offices to administer (you can find a state-by-state breakdown of allocated funding here). But exactly how each state will run its individual programs—and distribute rebates to either homeowners or contractors—is information we’re still waiting on.
4. Will Some States Opt Out of the New Rebate Programs Completely?
Some states have robust energy efficiency incentive programs in place already, and it’s likely they will have the easiest time distributing IRA funds. But what about states that don’t currently have the infrastructure in place to get rebates to households or contractors? Also, could politics come into play over energy efficiency incentives? States have turned down federal funding in the past over issues like health care and even COVID-19 unemployment benefits, and it’s possible there will be states that choose to decline funding.
5. Who Will Be Responsible for Verifying a Household’s Income Qualifications for Rebates?
Both the HOMES and HEEHR rebate programs determine the amount of the rebates someone can qualify for not only by the service or product but by income level. HOMES rebates can double for low and moderate-income (LMI) households, and the HEEHR program is exclusively available to LMI households.
Both of these rebates are “up front discounts,” meaning the customer will receive them immediately, but we know several contractors wondering if they’ll be responsible for verifying the income levels of homeowners or whether customers will need to apply through a state program. Like so many other details about these rebate programs, it’s likely to be determined on a state-by-state basis.
7. Does the Revised 25C Tax Credit Include Installation (Labor) Costs or Just Materials?
The current 25C tax credit does NOT include installation costs for insulation, windows, and doors. Will the revised IRA version? We’ve seen conflicting information and home performance contractors who aren’t sure what to tell their customers, so we’re sitting tight until we hear one way or the other from a government source.
JANUARY 2023 UPDATE: According to the IRS, when calculating the new 25C tax credit for insulation, air sealing, windows, and doors,"don't include amounts paid for the onsite preparation, assembly, or original installation" of those upgrades. Those costs can be included for everything else.
8. What is the REAL Maximum Cap for the New 25C Tax Credit?
The IRA states that the tax credit per household for any taxable year shall not exceed $1,200, but it also makes an exception for heat pumps and heat pump water heaters, which it caps at $2,000. Does this mean that a household could install heat pumps as well as insulation and air sealing in a single year and claim a maximum credit of $3,200? Or would they have to space out those measures over two years to claim $2,000 in one year and $1,200 in the other? This could make a big difference in how contractors that offer both envelope and mechanical services pitch upgrades to customers.
UPDATE JANUARY 2023: According to the IRS, the annual limits under the 25C tax credit are broken down as follows:
- A $1,200 yearly maximum for all building envelope components (insulation, air sealing, exterior doors and windows), home energy audits, and energy property (energy-efficient furnaces, boilers, and central AC systems, electrical panel upgrades)
- A separate $2,000 yearly maximum for heat pumps and heat pump water heaters.
This means that yes, a household could claim a credit of $3,200 in a single year if their upgrades included a heat pump or heat pump water heater as well as services covered under the separate $1,200 cap.