Home Electrification Incentives in the Inflation Reduction Act

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Home electrification upgrades like solar panels, electric stoves, heat pumps, and EV chargers are a means to a cleaner, cheaper, and more resilient home energy ecosystem.

So, what’s stopping every homeowner in America from electrifying their homes?

The biggest hurdle is often the cost. After a year of record inflation, not everyone has the cash laying around for solar panels or a heat pump water heater – even if these upgrades come with long-term energy cost savings.

Signed in August 2022, the Inflation Reduction Act (IRA) contains billions of dollars in rebates and tax credits to reduce – or completely remove – the cost barrier to home electrification.

In this article, we’ll explore how these incentives work, what projects they apply to, and how much they are worth.

Solar Rebates vs. Tax Credits

Simply put, there’s a lot of jelly in the IRA donut, and the home electrification incentives fall into two major categories: Rebates and tax credits.

Rebates

The IRA includes the High-Efficiency Electric Homes and Rebate Act (HEEHRA), which created point-of-sale rebates for home electrification projects. Point-of-sale means exactly what it sounds like: the rebate reduces the price of the project when you are paying for it.

Project	Maximum Rebate Amount
Heat pump water heater	$1,750
Heat pump HVAC	$8,000
Electric stove, cooktop, range, oven	$840
Heat pump clothes dryer	$840
Upgraded electrical panel	$4,000
Insulation, air sealing, ventilation	$1,600
Electric wiring	$2,500

HEEHRA rebates are reserved for low- and moderate-income households with less than 150% of the area median income (AMI). 

• For low-income households with less than 80% AMI, rebates can cover up to 100% of the project cost
• Moderate-income households with  80-150% AMI can use rebates to cover up to 50% of the project cost

So, let’s say you buy a heat pump water heater with an installed cost of $2,500. If your income is below 80% AMI, you can use the maximum $1,750 rebate to bring the upfront cost down to $750.

If you make between 80-150% AMI, the rebate can only cover half of the project cost and would be worth $1,250. Households can claim up to $14,000 in HEEHRA rebates, regardless of income.

It’s important to note these rebates have not been funded yet and will be operated by the states. The US Department of Energy said it will make funds available to state offices “later in 2023.” Use this calculator from Rewiring America to see if you qualify for rebates and to start planning your projects. If you make over 150% AMI, don’t worry – there are still incentives for your electrification projects.

Tax credits

The other way to save money on home electrification projects is by claiming tax credits. The IRA created and increased tax credits for many home efficiency upgrades and electrification projects, including:

Project	Annual Tax Credit Limit
Electrical panels and related equipment	$600
Heat pump water heaters	$2,000
Heat pump HVAC	$2,000
Home EV Charging	$1,000
Solar panel systems	No limit
Battery storage	No limit

 

Unlike upfront rebates, these tax credits do not lower the purchase price of a project. Instead, they are claimed when you file your tax return for the year the project was completed to lower your tax liability. Tax credits are worth 30% of the project cost up to a limit, and can be used regardless of income level. 

So, if you buy a $2,500 heat pump water heater in 2023, you can claim a tax credit worth $750 when you file your 2023 tax return. Homeowners can claim a maximum of $1,200 in tax credits per year (with a $2,000 exception for heat pump water heaters and HVACs).

If you spread your electrification projects out over multiple years, you can claim this tax credit multiple times, as long as you stay under the annual limit.

Can you use both types of electrification incentives?

Technically, you could claim both a rebate and tax credit for the same project, but there is a narrow band of households that have low enough income to qualify for rebates and high enough tax liability to claim the tax credit. It’s also worth noting that the tax credit applies to what you spend on a project.

So, if you use a rebate to reduce the cost of a $2,500 heat pump water heater to $1,250, then the tax credit would be worth 30% of $1,250, or $375.

Consult a licensed tax professional with questions regarding tax credits.

Claiming IRA Incentives

For many households, IRA incentives are much more than a “nice to have” – they’re necessary tools for clearing the cost barrier to home electrification. And let’s be honest, as a massive government program, we can expect the roll-out of HEERHA rebates later this year to be… messy at best.

With that in mind, it’s crucial to work with home electrification professionals that understand these incentives and how they work. In other words, don’t count on a 17-year-old part-time Lowe’s employee to know how to apply a $1,750 HEEHRA rebate on your heat pump water heater. That’s where home electrification marketplaces like Electrum come in handy.

Electrum pairs you with an Energy Advisor to create a home electrification solution, generate bids from local installers, and explore incentives. Simply put, they do this sort of thing every day.

This article is supported by Electrum and Solar.com.