The New Inflation Reduction Act Means Real Money for Homeowners
By Matt Cantor, Cantor Inspections
The new Inflation Reduction Act provides almost $400 Billion (that’s with a B) for the mitigation of causes of climate change (the artist formerly known as global warming) including, and in no small measure, the warming caused by activity at your own home.
American homes account for about 22% of the CO2 output in the U.S., collectively making them one of the biggest contributors. Although there are very good economic reasons to shift to home electrification, the fact that almost a quarter of U.S. CO2 output comes from our homes means that this is a place where we can each make a real difference in the rate of climate change with our market choices.
So let’s begin listing a number of the savings that are now available in the new legislation.
SOLAR TAX CREDIT:
There is now a 30% tax credit for homeowners who install solar panels. This credit is a significant increase over previous credits and is slated to last 10 years (but don’t wait!). You’ll save almost 1/3 off such a system as well as any necessary electrical upgrade costs. If you already installed panels in 2022 you’ll be able to take the full 30% deduction this year.
A similar credit is available for commercial projects and there are some additional deductions available for qualifying low-income housing or community projects.
ENERGY EFFICIENCY REBATES:
Depending on your state, the new High-Efficiency Electric Home Rebate program can offer you up to $14,000 in direct rebates on heating, cooling, water heating, rewiring and a variety of appliances.
HERE ARE SEVERAL:
You can receive up to $8,000 toward a heat pump system.
Heat pumps provide both heating and cooling and use only electricity. This is what I have at my home and, though Americans have been slow to adopt non-fossil fuel systems, these have actually been around and very popular worldwide for decades. They’re well tested and there are an increasing number of knowledgeable installers in the US every year. We’re ready.
Since the same unit provides both heating and cooling (one is simply the reverse function of the other) you’ll get cooling added even if you didn’t think A/C was something you could afford. Also, Heat pump systems are mostly zone-specific, offering heating or cooling to only those rooms you wish to heat or cool at any given moment. This is a big energy saver all by itself, not to mention a marriage saver. Some systems that use ducting lack this feature though it can be added in if you’re willing to bear the ample cost. Be sure to compare a “multi-split system” with a “fan-coil/ducted system” if you’re buying a heat pump for heating and cooling.
You can also receive up to $1,750 toward a heat pump water heater.
Again, I have one of these too (though I did so before the tax rebates and have no regret). This kind of water heater uses both a heat pump, which pulls heat out of the air and uses it to heat the water using a compressor and a refrigerant gas (a slow but very efficient method), as well as standard electric coils like you might see in your oven (a fast but comparatively inefficient method). If you’re on gas now (most people are) you’ll need some wiring to accommodate either an electric water heater or a heat pump heating/cooling system. This brings us to the next major rebate.
If you need a new electrical panel you can get up to a $4000 rebate for installing one.
This rebate is typically enough for a good-sized home. Also, the program offers up to $2,500 for additional wiring. This may be sufficient to wire a heat pump for heating and cooling, a heat pump water heater, and perhaps another circuit or two. Electricians, like all contractors, vary widely in what (and how) they charge. It’s always good to get more than one (and sometimes 3-4) bids for any job with an appreciable expense.
That said, never hire based on price alone. It should be third or fourth in your decision-making criteria. Would you hire a brain surgeon based on price alone? Well, hiring people who work on your home has serious implications regarding safety, and also the experience you’ll have working with your contractor. A great contractor creates a safe positive experience and a poor one leaves their client wanting to sue.
Having spent decades helping people unravel the causes of unpleasant construction experiences (and their remedies), the most common element that led to a bad experience was under-budgeting the job. I’m not sure it’s true that you get what you pay for, but it’s exceedingly rare to get high quality skilled labor at a bargain price.
The last few money-saving items I’ll list aren’t as fundamental to electrification but are sort of the The High-Efficiency Electric Home Rebate program’s icing on the cake.
The program is offering up to $840 off the cost of an electric stove, a cooktop, or a “heat-pump” clothes dryer. This dryer is a particularly cool new technology that’s much more efficient than a conventional electric dryer, although sun and wind remain the natural champions for drying clothes.
Lastly, the program offers up to $1,600 for insulation, caulking/sealing, and certain kinds of ventilation of attics or crawl spaces. This probably offers the best return on the dollar of all the measures funded.
If your household income is below 80% of the area median income or AMI (locally about 151K), the rebate limits may be sufficient to pay for the total cost of many of these projects, making these upgrades free. If you’re above 80% but below 150%, you’ll qualify for a 50% rebate on these upgrades, still making them outstanding benefits and extremely worthwhile. If you had a chance to buy a furnace at half-price wouldn’t you jump at it, even if you had a few years left in the one you have?
If you surf over to Fannie Mae, they offer a free online tool to find out the AMI in your neighborhood. It’s at https://ami-lookup-tool.fanniemae.com/amilookuptool/
Now you have a chance to help defeat global warming, improve the American economy, and save yourself huge amounts of money over the coming decades by moving into a system that could ultimately operate at no cost if you have enough solar energy production. Remember that if you’re running gas heating, water heating, cooking and clothes drying, that will never happen unless you start fracking your backyard.
OVERALL ENERGY EFFICIENCY
The IRA allows homeowners to recoup $2,000-$8,000 for improvements that reduce your home’s overall energy output. You can take federal tax deductions for insulation, weather-sealing, and insulating around pipes and ducts. The rebate will be based on the total energy reduction so an expert in both installation and energy measurements will be needed. This is all quite new but you’ll soon find contractors offering this package of service, as there’s a lot of money to be made. Look for “insulation” or “energy-efficiency” companies to emerge.
Also, several Federal tax deductions are available for:
Energy audits ($150), doors ($250 each up to 2), and up to $600 for windows, skylights, and a range of other efficiency upgrades. Not the big bucks but it’s more money and still helpful.
The total deduction will be capped at $1200/year but if you install a heat pump that goes up to $2000. It’s not yet clear if this is above and beyond the initial direct rebate. The IRA programs are all very new so be on the lookout for clarifications and stay in touch with your tax professional.
The Inflation Reduction Act’s many benefits to homeowners and businesses are all very exciting and surprising and are just exactly what’s needed now so don’t let those dollars languish uncollected. You’ll actually be helping the whole planet when you take advantage of all these free/deeply discounted home improvements.
And they said Congress couldn’t get anything done.
Resources for more information:
BAYREN.org - outreach, training, technical assistance, funding and resources to make the Bay Area and California a greener, more resilient, more equitable and more energy efficient place to live.
Frequently asked questions about energy efficient home improvements and residential clean energy property credits
Solar Installation Cost Estimator
PG&E Rebate Programs , and efficient products guide
Rewiring America.org helps Americans save money, tackle nationwide emissions goals, improve health, and build the next generation of the clean energy workforce.
Cantor Inspections was formed in 1988 by U.C. Berkeley Architecture graduate, Matt Cantor and has performed over 5000 inspections. Matt Cantor is a past president of the Golden Gate chapter of the American Society of Home Inspectors. Inspections cover all major system of the home; electrical systems, furnaces, water heaters and plumbing, waste and sewer piping, foundation and seismic readiness, roofing, drainage issues and the many other issues that affect the condition of the home.
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