2022 Inflation Reduction Act: Everything Homeowners Need to Know
Here’s how this bill may—or may not—save you money on home projects
Highlights
The Inflation Reduction Act of 2022 became law on August 16, 2022.
Homeowners can cash in on rebates and tax credits on home energy upgrades.
It aims to reduce medication costs and invest in renewable energy.
Low-income households can recoup 100% of an electrification project up to $14,000.
Homeowners can cut 30% of their solar costs from their federal taxes.
What Is the Inflation Reduction Act?
President Joe Biden signed the Inflation Reduction Act of 2022 (IRA) into law on August 16, 2022, calling it "the most aggressive action ever" to confront the climate crisis and strengthen the nation's economic and energy security.
According to the White House, the IRA aims to lower prescription and energy costs for families, combat the climate crisis, and reduce the federal deficit. While the nonpartisan Congressional Budget Office says the bill will have a negligible effect on inflation between its introduction and August 2023, it does come with several provisions that will help Americans save money.
But for homeowners, the IRA promises a welcome boost for residential energy upgrades. As part of the bill’s focus on energy security and climate change investment, households will get tax credits to help offset home improvements that lower energy costs while reducing carbon emissions by up to 40% by 2030. According to the Tax Foundation, a tax credit is a provision that reduces your final tax bill, dollar-for-dollar. Tax credits differ from deductions and exemptions, which lower your taxable income. It has been estimated that since the introduction of the IRA, over 170,000 clean energy jobs have been created and companies have announced over $110 billion in clean energy manufacturing investments.
Do I Qualify for Home Improvements Under the Inflation Reduction Act?
If you’re a homeowner, you will qualify for upfront discounts or tax credits on home energy projects that may also lower your monthly utility bills. If you’re in the market for a new car, you qualify for a tax credit if you buy an electric car or plug-in hybrid vehicle.
There are no income requirements to reap the benefit of the tax credit programs. However, rebates are only available to low- and middle-income families who buy energy-efficient electric appliances. In order to qualify for a rebate, your family's total annual income must be less than 150% of your community's median income. The tax credits make household energy-efficient upgrades and electric vehicle purchases more feasible for lower-income households that may not typically be able to afford them.
How the Inflation Reduction Act Benefits Homeowners
The IRA helps homeowners invest in renewable home energy and efficient electric appliances by offering discounts on solar panel installation and other clean technologies. Electrification nonprofit Rewiring America estimates that a household could save $1,800 per year on energy bills by upgrading from a furnace to a modern electric heat pump, using a heat pump for water heating, adding rooftop solar, and converting to an electric vehicle. Here’s a breakdown of the IRA’s most significant provisions for homeowners.
High-Efficiency Electric Home Rebate Act
The High-Efficiency Electric Home Rebate Act (HEEHRA) lets homeowners take advantage of rebates for certain electrification projects. Households with a median income level under 80% of the area median income can get up to 100% of their project covered, up to $14,000, and households earning between 80% and 150% of the area median income can recoup 50% of the cost, also up to $14,000. HEEHRA rebates cover both installation and material costs.
You can visit your state government’s website to determine where your household falls. Some states offer tables that show a household’s income level based on annual income, municipality, and the number of people living in the house. There are also online calculators that let you enter that information to determine your household’s income level.
Projects include:
Heat pump HVAC systems
Electric stoves and cooktops
Heat pump water heaters
Heat pump clothes dryers
Circuit panel upgrades
Insulation upgrades
Ventilation upgrades
Wiring upgrades
Energy Efficient Home Improvement Credit
The IRA’s Energy Efficient Home Improvement Credit renames a nonbusiness energy property tax credit that expired at the end of 2021 and extends it through 2032. But it’s gotten a boost. The provision now lets you claim credit for 30% (up from 10%) of what you pay to install upgraded heat pumps, insulation, breaker boxes, biomass stoves, and other energy-saving systems. There is an annual cap, however, of $2,000. There are also specific annual caps for certain items, like $500 for doors and $600 for windows and skylights. The credit covers the cost of home energy audits up to $150 and electrical panel upgrades up to $600. Installations must meet certain efficiency criteria, like an Energy Star rating. In addition to meeting efficiency criteria, the IRS issued a notice on August 4, 2023, stating that starting in 2024, taxpayers will need to provide proof that a qualified auditor conducted their home energy audit. To satisfy this requirement, the auditor must be listed on the Department of Energy’s page of certified auditors. This provision indicates that it will be easier for homeowners to have these home improvements approved and reduce their owed taxes if they complete the projects before the end of 2023, as the number of approved auditors will decrease significantly.
New Energy Efficient Home Credit
The New Energy Efficient Home credit incentivizes developers to build greener homes by offering a credit of up to $5,000. To qualify, builders must construct homes that qualify for the Department of Energy’s (DOE) Zero Energy Ready Homes standard. According to the DOE, that means a home must be “so energy efficient that a renewable energy system can offset all or most of its annual energy consumption.”
The IRA provision is an upgrade of a previous tax credit, which has been in effect since 2006 but only offered a $2,000 credit. The program covers new single-family, multifamily, and manufactured homes, as well as existing homes undergoing a total overhaul.
Residential Clean Energy Credit
Homeowners can cut 30% of their solar costs from their federal taxes under the Residential Clean Energy Credit, which runs through 2032. The credit goes toward the cost of solar panels and other solar products for the home. One major perk of this program—there’s no cap on how much you can spend. You'll get the tax break regardless of how much your solar projects cost.
In addition to tax savings, homeowners can look forward to lower energy bills. Depending on your home’s size and power usage, solar panels can help you save between $10,000 and $30,000 throughout their lifespan of 25 to 30 years, according to EnergySage. Plus, solar panels increase home value by about 4%.
Paul Gangarosa, a Powur solar consultant and pro in the Angi network, said the tax credits add to the many reasons homeowners should consider installing solar technology.
"It can help you save tens of thousands of dollars over the next 10 or 20 years. And, of course, it helps the planet. I really can't think of a reason not to go solar," said Gangarosa, who is based in Charleston, South Carolina. "It increases the value of your home. Plus, everybody needs electricity. Now, you can turn your home into a producer of electricity every day."
Gangarosa also pointed to the need for energy independence in America, saying, "Eventually, we're going to run out of dead dinosaurs. We're not going to run out of the sun anytime soon."
Clean Vehicle Credit
Drivers considering going electric or installing an electric car charging station in their home should take advantage of the IRA’s Clean Vehicle credit. Under the program, those who buy electric or plug-in hybrid cars or trucks can get a $7,500 tax credit for new vehicles and $4,000 for used ones.
While electric vehicles have a higher upfront cost, they come with long-term savings. A study by the DOE’s National Renewable Energy Laboratory and the Idaho National Laboratory found that a driver could save $14,500 on fuel costs over 15 years by switching to electric.
What Benefits Can I Access Now?
Consumers can reap some of the IRA’s energy-related home improvement benefits immediately. The Energy Efficient Home Improvement Credit is currently in effect, as are the Residential Clean Energy Credit and electric vehicle tax credit. Taxpayers are already seeing positive outcomes from these benefits with reduced tax bills. In addition, the program’s home energy rebates have helped American households save money on utility bills, upgrade to clean energy equipment, and reduce indoor and outdoor air pollution. The DOE estimates that these rebates will save households up to a $1 billion on energy bills each year and support over 50,000 domestic jobs.
Tips to Create an Energy-Efficient House If You Don’t Qualify
There are ways to help your home be more energy efficient, even if you or your projects don’t qualify to take advantage of the IRA’s incentives. Here are some tips for a greener home.
1. Add Insulation
The right amount of insulation will help contain your home’s air conditioning in the summer, and keep things cozy in the winter. According to the Environmental Protection Agency, you can save about 15% on heating and cooling costs with a properly insulated home.
2. Invest in a Cool Roof
Reflective cool roofing keeps your roof about 55 degrees cooler than other types of traditional roofing. If you live in a warm climate, a light-colored or white roof can save you money on energy bills by bouncing the sun’s heat away from your home—helping to cool your home and giving your AC system a break.
Popular cool roofing materials include thermoplastic polyolefin (TPO), petroleum-based ethylene propylene diene monomer (EPDM), and polyvinyl chloride (PVC). Contact a roofer near you to discuss which type of roof works best for your particular climate.
3. Reduce Water Use
Practice water conservation methods like catching rainwater with a barrel attached to your gutter’s downspouts, or installing low-flow toilets, faucets, and showerheads. You can also save a substantial amount of water by upgrading to more energy-efficient large appliances. According to Energy Star, a standard-sized Energy Star-certified dishwasher can save you an average of 3,870 gallons of water over its lifetime. Their certified washing machines use about 25% less energy and 33% less water than regular washers.
But you can reduce water usage for free by simply turning off the tap as soon as you’re done using it and being mindful of how long you’re in the shower or running the sprinkler.
4. Use LED Bulbs
You can save up to 75% of lighting energy by switching from incandescent light bulbs to LED bulbs. While LED lights cost more upfront—$5 to $10 each—the Consumer Federation of America estimates they could save you an estimated $1,000 over a decade.
5. Implement a Gray Water System
Check with your local municipality to see if residents are allowed to use gray water systems. Also known as a “laundry-to-landscape” system, a gray water system directs the water from your washing machine into your yard via a drain hose and underground tube. This lets you reuse laundry water on your lawn, trees, and gardens.
6. Seal Cracks and Leaks
One effective way to save money on your electric bill is to seal leaks that allow heat and air conditioning to escape your home. If you notice any cracks in your windows, doors, or foundation, seal them right away. Use weatherstripping for drafty doors and windows. You can also apply caulking to your frames and sealant to foundation cracks.