The Inflation Reduction Act of 2022 promotes the adoption of energy-efficient systems by offering tax incentives to homeowners. On August 16, 2022, the President enacted this legislation, officially known as the Inflation Reduction Act (IRA) of 2022, to bolster sustainable living and curb inflation.
In today’s rapidly evolving renewable energy landscape, property owners have a unique opportunity to capitalize on the IRA and its potential to supercharge residential energy optimization, ultimately saving on carbon and cash. Beyond traditional tax credits and grants, the IRA is igniting growth in key sectors of the economy that forward-thinking homeowners can strategically tap into and benefit from.
With so many opportunities to take advantage of for upgrading your home, we’ve identified several areas where the IRA’s influx of investment can be leveraged to foster strategic upgrades. Let’s explore the possibilities together and harness the power of the sun to build a brighter future.
IRA for homeowners that want to install solar panels
The IRA extends the Solar Investment Tax Credit (ITC) provisions, allowing residential homeowners who install qualifying solar energy systems between January 1, 2022, and December 31, 2032, to receive a 30% tax credit on their federal income taxes.
If homeowners owe less in federal taxes than the credit amount for the year they installed their solar system, they can carry over any unused credit until the ITC expires on January 1, 2032.
Following 2032, the residential ITC will gradually phase out to 26% in 2033, 22% in 2034, and terminate in 2035. It’s crucial to note that the IRA’s Investment Tax Credit expansions do not apply retroactively to residential solar projects commissioned before 2022.
Battery Storage for homeowners under the IRA
Battery storage qualifies for the 30% federal tax credit under the IRA, along with solar, wind, geothermal heat pumps, and fuel cells. The IRA specifically addresses battery storage technology expenditure under Section 13302.
To qualify for the 30% tax credit, battery storage must be connected to a residential dwelling unit in the United States and have a capacity of at least 3 kilowatt-hours. Most battery installations will easily exceed the minimum capacity required to qualify for the solar tax credit. Starting January 1, 2023, standalone battery storage will also be eligible for the 30% Residential Clean Energy Credit.
Homeowners can claim the Residential Clean Energy Credit for battery storage added to existing solar systems, though official guidance is pending. The tax credit can be applied to reduce federal tax liability in the same tax year the battery was installed and approved by a government inspector.
Battery storage may be necessary for homeowners who want to be energy independent, have a reserve of energy for blackouts and planned safety power shutoffs, or live in areas without net metering. The IRA’s solar tax credit, applicable to most batteries installed between 2022 and 2032, is designed to make battery storage more accessible for homeowners.
Solar Insure offers a 20-Year Battery Monitoring and Warranty, which covers battery parts and labor, as well as battery replacement below 30% capacity between years 11-20.
Geothermal for residential properties with IRA
The IRA has made clean energy geothermal systems more affordable for residential use by increasing the federal tax credit from 26% to 30% until 2032, with a step-down plan through 2034. Here is a summary of the updated tax credit rates for residential and commercial geothermal installations, along with an outline of how to apply for the tax credit.
The IRA extends the credit for residential installations at these rates:
- 2022-2032: 30%
- 2033: 26%
- 2034: 22%
To qualify, the geothermal heat pump must meet Energy Star requirements upon installation completion, be installed in a US-based principal residence, and be applicable to both existing homes/retrofit and new construction. The geothermal system must be placed in service and efficiently running after installation before applying for the tax credit.
The tax credit covers expenses associated with ground source heat pumps, including onsite preparation, equipment, assembly, and necessary piping or wiring used when connecting the system to the home. To apply for the geothermal federal tax credit, fill out form 5695 and include it with your federal taxes. Consult a tax professional for assistance.
Home upgrades eligible for Energy Efficiency IRA Tax Credits
The IRA includes energy efficiency tax credits for homeowners who make green upgrades to their homes. The legislation revives and enhances two tax credits, namely the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit.
The IRA revives the Nonbusiness Energy Property Credit, now known as the Energy Efficient Home Improvement Credit, and enhances its benefits. The old credit was worth 10% of the costs of installing certain energy-efficient improvements. However, the IRA gives a 30% credit equal to 30% of the costs for all eligible home improvements made during the year starting in 2023.
The credit now also covers the cost of specific electric panels, biomass stoves, boilers, and home energy audits. The previous $500 lifetime limit is replaced by a $1,200 annual limit, and the lifetime limit on windows is removed. The revised credit is extended through 2032.
High-Efficiency Electric Home Rebate Program – Energy Efficiency Tax Rebates
Under the Inflation Reduction Act, residents can benefit from rebates when purchasing energy-efficient electric appliances. A total of $4.5 billion is allocated for these rebates, distributed through state and tribal governments that establish their own qualifying programs. The funds will be available until September 30, 2031.
To be eligible, a family’s total yearly income must be lower than the median income by 150% for their area.
Qualifying homeowners can receive rebates up to:
- $840-$2000 for items like a cooktop, heat pump clothes dryer, oven
- $1,750 for a heat pump water heater
- $8,000 for a heat pump for space heating or cooling.
Additionally, rebates for non-appliance upgrades are available up to:
- $1,600 for insulation, air sealing, and ventilation;
- $2,500 for electric wiring; and
- $4,000 for an electric load service center upgrade.
There are limitations on rebate amounts for certain families. If a family’s annual income is between 80% and 150% of the area median income, a rebate cannot exceed 50% of the cost of a qualified electrification project. Each qualifying family is limited to a maximum of $14,000 in total rebates under the program.
Upgrading to EVs and Charging Stations
The IRA provides incentives for electric vehicle (EV) adoption and EV charging infrastructure. Key provisions for homeowners and residential sectors include:
- Renewal of the $7,500 EV tax credit: Starting in January 2023, this credit remains in effect for at least ten more years. The tax credit can now be applied at the time of sale rather than through the buyer’s tax return.
- Credit for used EVs: A credit of up to $4,000 is available for used EV purchases.
- Extension of the tax credit for new EV charging stations: The IRA extends the current tax credit for installations made before 2022. For up to $100,000 in costs, the tax credit increases to 30% and 20% for the remaining costs, with direct pay and transferability.
Homeowner plan for leveraging IRA incentives the smart way
The U.S. Inflation Reduction Act provides a range of valuable incentives for homeowners to invest in renewable energy, energy efficiency, and electric vehicle adoption. These incentives include tax credits for solar systems, energy storage projects, and electric vehicle purchases, as well as rebates for energy-efficient home appliances and electrification projects. These initiatives aim to promote the adoption of clean energy technologies and help homeowners reduce their environmental impact and save on energy costs.
As a homeowner, it is crucial to protect your solar and battery investments to maximize their benefits and ensure their long-term performance. Contracting with a Solar Insure Certified Installer guarantees that your solar and energy storage systems are installed and maintained by professionals adhering to the highest industry standards, including monitoring.
By choosing a Solar Insure Certified Installer, you can take advantage of Solar Insure’s 30-year monitoring and warranty for your solar system, as well as a 20-Year Battery Monitoring and Warranty. This comprehensive protection gives you peace of mind, knowing that your renewable energy investments are secure and well-maintained, allowing you to reap the full benefits of solar and battery storage.