The Inflation Reduction Act is broad legislation and overwhelming to understand. Many of our customers have asked us how will it benefit them and what benefits are available to the common household? This blog will primarily address these issues, but first let me briefly address another aspect of the act.
The primary goal of this act is to address climate change and slow down global warning while lowering costs to families. One aspect of the act that is little known is not only is it self-funding through revenue and saving sources, but it is also anticipated to provide $300 billion in deficit reduction.
Where are these revenues and savings coming from (in billions):
15% Corporate Min. Tax $313
IRS Tax Enforcement Funding: $124
Methane and Superfund Fees: $ 18
1% Stock Buy Back Tax: $ 73
Repeal Trump-Era Drug Rebate Rule: $122
Drug Price Inflation Cap: $101
Negotiate Certain Drug Prices: $ 99
How is it being spent and invested:
Clean Manufacturing Tax Credits (US made): $ 37
Clean Electricity Tax Credits (state and utilities): $161
Conservation, Rural Development, Forestry: $ 35
Individual Clean Energy Incentives: $ 37
Clean Fuel and Vehicle Tax Credits: $ 36
Other: $ 184
Estimate Deficit Reduction $300 Billion
The rest of this blog will go into more detail on the two programs that directly affect clean energy for residences, the Individual Clean Energy Incentive and the Clean Fuel and Vehicle Tax Credits.
Before we begin, it is important to note the difference between a Tax Credit, Rebate and Deduction. A Tax Credit is a dollar for dollar reduction in tax liability (you owe $1,500 in taxes to IRS, you have a credit of $500 the tax lability is reduced and you now owe $1,000.) A Tax Rebate is funded by Federal Government through state grants, states to pay homeowners directly once qualifying items purchased and installed. A Tax Deduction is a reduction in the income amount of a homeowner and can be capped or limited if standard deductions are used.
- Residential Clean Energy Credit
- For new installations of solar, wind, biomass, geothermal and fuel cell (in most cases this includes adding solar and storage to existing solar systems)
- Was set to expire end of 2024, now set to expire 2034
- 30% from 2022 – 2032
- 26% 2033
- 22% 2034
- Applies to battery storage units over 3 KWH
- No longer applies to biomass furnaces and water heaters
- In most cases the credit can be spread over multiple years.
- The Residential Energy Property Credit expired in 2021, but the Inflation Reduction Act brings it back to life now named the Energy Efficient Home Improvement Credit
- For installing certain energy-efficient insulation, windows, doors, roofing, energy-efficient water heaters, heat pumps, central air conditioning systems, furnaces, hot water boilers, and air circulating fans and similar energy-saving improvements
- It will be the same as the previous credit in 2022 (10% max $500)
- In 2023-2032 this credit will be 30% of eligible home improvements made during the year
- The $500 lifetime limit will be replaced with a $1,200 annual limit meaning you can spread out your projects and apply for the credit over multiple years
- Annual limits for projects:
- $150 for home energy audits
- $250 for an exterior door ($500 total for all exterior doors)
- $600 for exterior windows and skylights, central air conditioners, electric panels and certain related equipment, natural gas, propane, or oil water heaters, natural gas, propane, or oil furnaces or hot water boilers
- $2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and boilers (for this one category, the $1,200 annual limit may be exceeded)
- Alternative Fuel Refueling Property Credi
- For purchasing an electric vehicle
- Originally expired at end of 2021, now extended through 2032
- Up to 30% of the cost of “qualified alternative fuel vehicle refueling property” up to $1,000. (Usually an EV charger)
- Credit also applies to equipment used to store or dispense alternative fuels (hydrogen and bio-fuels)
- Starting in 2023 IRA clarifies the credit applies to the purchase of bi-directional charging equipmen
- High-Efficiency Electric Home Rebates
- For low and middle income families who purchase energy efficient electric appliances
- Not a credit but a rebate
- Qualifying homeowners can get rebates as high as:
- $840 for a stove, cooktop, range, oven, or heat pump clothes dryer
- $1,750 for a heat pump water heater
- $8,000 for a heat pump for space heating or cooling
- Rebates for non-appliance upgrades will also be available up to the following amounts:
- $1,600 for insulation, air sealing, and ventilation
- $2,500 for electric wiring
- $4,000 for an electric load service center upgrade
- Rebate cannot exceed 50% of qualified projects if annual income is between 80%-140% of the area median income. Per Sonoma County website (https://sonomacounty.ca.gov/incomelimits) this was $78,950 for an individual
- Each qualifying family will be limited to no more than $14,000 in total rebates.
- EV Tax Credi
- For purchase of an Electric Vehicle
- EV’s placed in service after 2022, up to $7,500 EV Tax Credit for 10 years
- Credit is based on vehicle sourcing and assembly
- Used EV’s over two years old can get $4,000 credit or 30% of purchase, whichever is less
- Applies to any clean vehicle – includes Hydrogen fuel cell or plug in hybrids with over 7 KWH battery could qualify (weight dependent
- Starting in 2024 you can take this credit as a discount on the car, transferring it to the dealer
- The credit does not apply to individuals with adjusted gross incomes over $150,000 of married couples filing jointly with AGI’s over $300,000 (Head of household $225,000)
- To Qualify Vans, Trucks and SUV’s can’t exceed $85,000
- For Cars, can’t exceed $55,000
- Used vehicles needs to be $25,000 or less
- Final assembly must occur in North America
- Also Minerals and other key components (battery) used to manufacture EV are North American Source
So what are a few logical steps homeowners can take to maximize the use of these programs?
- Invest in solar and storage to produce and store local produced clean power saving money on your utility bill while receiving a Federal Tax credit.
- Electrify your home when paired with clean energy is the ultimate in reducing your costs for ever increasing fossil fuels.
- Replace natural gas water heaters and furnaces with electric heat pumps
- Replace your natural gas cooktop with an induction stove and go with an electric oven
- Replace your petroleum guzzling cars and trucks with electric vehicles and drive on sunshine. I prepaid my EV’s fuel for 25 years by adding 6 solar modules to my house, at the equivalent of $1.00 a gallon for a 30 MPG vehicle and received the Federal Tax credit while doing so.
Use the Inflation Reduction Act, to minimize your carbon foot print all while saving money and leaving the world a better place for future generations.
Thank you for summarizing the 2022 Inflation Reduction Act so well!
My pleasure – the act is complicated but will promote renewable energy and carbon footprint reductions.