Let’s talk about energy rebates
If you’ve been following the news this year, you’ve probably heard about energy rebates. Originally set to sunset this year, the extension of existing rebates was part of the Inflation Reduction Act of 2022. Now they can be claimed for an additional 10 years, through the end of 2032.
What, exactly, are energy rebates?
Energy rebates are incentives from the federal government to help homeowners make certain upgrades in three categories:
- Existing energy equipment (such as HVAC systems and water heaters)
- Structure upgrades (such as roofs or windows)
- Renewable energy infrastructure (such as wind turbines or solar panels)
They are applied in the form of a tax credit on your federal income taxes. A note about tax credits: unlike tax deductions and write-offs that reduce your taxable income, tax credits directly reduce the overall amount of taxes that are owed. If the amount of taxes that are owed is less than the amount of the tax credit received, you could be eligible to receive a refund when you file your taxes. For example, if you owe $10,000 in federal taxes but receive a $15,000 tax credit, you would receive a refund of $5,000.
1. Upgrading existing equipment
For the average homeowner, the most accessible rebates are going to come in the form of upgrading the equipment you already own. Qualifying equipment includes: Air source heat pumps Air conditioners Boilers Furnaces and fans Non-solar water heaters Since these kinds of rebates are the easiest to qualify for, they are also the lowest dollar amount of the three rebate categories. They top out at $300 for A/C units, heat pumps, and water heaters; $150 for furnaces or boilers; and $50 for circulating air fans. Only your primary residence is eligible for these rebates. New construction and rentals do not qualify.
2. Upgrading home materials
If you are planning a renovation or other large home project, this next set of credits may be for you. Upgrading your energy efficiency materials can pay off not only in the form of a tax credit, but also in long term savings on your monthly energy bills. Qualifying materials include: Insulation Metal or asphalt roofs Windows, doors, and skylights Of course, these types of updates are more costly and labor intensive than replacing a furnace. Accordingly, the available rebates are higher. All three categories are eligible for a rebate of 10% of the cost of the materials, up to $500. Note that the cost of installation is NOT included in the rebate.
3. Adding renewable energy infrastructure
If you’re ready to go all in on reducing your energy costs, installing new renewable energy infrastructure could be a good option for you. Not only has technology improved exponentially in just the last five years, the rebates available for these kinds of projects are going to give you the most bang for your buck compared to simply upgrading what you already have. Qualifying projects include: Small wind turbines Solar energy systems Fuel cells Biomass fuel stoves Geothermal heat pumps For all systems, the tax credit is applied depending on when the system was placed into service. For systems in place after 12/31/2022 and before 1/1/2024, homeowners are eligible for a credit of 22% of the cost of the system, INCLUDING the installation costs. For these credits, both existing homes and new construction quality, as well as secondary residences. Rental properties are still exempt.
The bottom line
If you’ve been considering upgrading any energy equipment or systems in your home, now is a great time to do so. After all, who doesn’t like paying less in taxes while saving money in the long run?