Are you interested in finding opportunities to decarbonize and electrify your home energy systems, maybe switch to more energy efficient appliances, or even purchase an electric vehicle? The Inflation Reduction Act (IRA) provides unprecedented federal financial incentives and tax rebates for a wide range of climate investments. Together the incentives can run into the tens of thousands of dollars, albeit typically preceded by upfront costs and a bit of a wait until tax returns have been filed and refunds issued by the IRS.
Here is a brief run-down of the IRA’s key provisions for consumers:
- Switch to renewable energy in your home. Solar arrays and geothermal heat pumps producing electricity or heating qualify for a 30 percent tax credit. This includes materials, labor, and fees for permitting and inspection. The same goes for batteries as long as they have at least 3 kWh of storage capacity. There is no cap on the total spent and if your credit exceeds your federal tax return, the difference rolls over to the next year. The project just needs to be in service by 2032 (afterwards the credit drops to 26 and then 22 percent).
- Make your home more energy efficient. Start with an energy audit, which comes with a $150 tax credit per household (in Massachusetts, the MassSave program also offers a free audit). Then, tap into the Energy Efficient Home Improvement Tax Credit, which got a substantial makeover and now offers up to $1,200 per year for things like adding insulation or installing better windows. The credit can also be applied to the purchase of certain electric, energy-efficient appliances, such as heaters, AC units, and boilers. Very high-efficiency heat pump-based ACs, water heaters, etc. can get up to $2,000 in credits per year. These credits are available through 2023 and renters qualify as well.
- Thinking about driving electric? There is a tax credit for that too. Up to $7,500 for qualifying new electric vehicles and 30 percent or up to $4,000 for used ones. A nice add-on is that the tax credits can be transferred to the dealer, thus allowing buyers to take advantage of the savings at the point of sale and not have to wait for tax season. The big caveats for electric vehicle incentives are domestic content and assembly requirements aimed at boosting U.S. electric vehicle and battery manufacturing as well as income and vehicle price caps. The Department of Energy (DOE) has created a searchable database to help you determine which vehicles qualify for how much and what those caps are. Last but not least, the installation of home EV charging stations is supported with a 30 percent tax credit (up to $1,000) for the cost of hardware and installation.
Not thinking about a project yet? Just keep in mind that many of the incentives are scheduled to expire or will be reduced after 2032, so start planning now to save.
Tanja Srebotnjak, Director of the Zilkha Center