If you want to move towards a more energy-efficient , we have some good news for you. From January 2023, two new federal tax credits or rebates savings incentives mean upgrading to a greener heat pump cooling and heating system is easier than ever.

The Energy Efficient Home Improvement Credit and the High Efficiency-Electric Home Rebate Program (both parts of the Inflation Reduction Act that came into force in August 2022) mean you can install a heat pump at a much lower cost. Some citizens will even be eligible for the full rebate.

Designed to help homeowners switch from inefficient air conditioners and furnaces to energy-efficient heat pump cooling and heating systems, these new incentives can save you up to $8,000—certainly not savings to be sniffed at!

The Inflation Reduction Act

Want to know what the Inflation Reduction Act (IRA) contains? We've broken it down so you get the important details.

The Background

Global warming and climate change are having a significant impact on the Earth. And if we don't act fast, we could cause considerable problems for our children and grandchildren.

This is one of the main reasons for the Inflation Reduction Act (IRA). Pushed through in 2022, no other government has pledged to spend so much on climate change issues. Together with a focus on lowering healthcare costs, the Act offers cash incentives to homeowners switching to greener energy sources.

What the Act Means for You

But what does all this mean for your bank balance? Well, if you're looking to switch to greener alternatives, you can benefit from Energy Efficient Tax Credits up to the value of $1200. These credits count towards energy-saving installations like heat pumps, exterior doors, electrical panels, and appliances.

 

Or you could qualify for the IRA's heat pump rebate up to the maximum value of $8,000. The rebate is designed for lower-income households, opening up the option of environmentally friendly energy systems for all.

In short, the Act is a step forward for sustainable energy. It's an opportunity for us all to review our energy usage and take responsibility for our individual carbon footprints. By using the available credits and rebates, it's hoped that the US will be able to reduce its carbon emissions by 40% by 2030.

What is a Heat Pump?

A heat pump is a device that transfers heat from one source to another, thus providing heating and cooling. Usually, the main heat source is the ground, air, or water. Because a heat pump doesn't burn fuel, it's a sustainable and greener way of heating and cooling your home.

Heat pumps work by pumping a refrigerant through the system. The chemical absorbs and releases heat as it travels through the system. As it passes through the outdoor coil, it absorbs heat from the outside air (or whatever else you're using as a source of heat). Then, compression heats it further, passing into a cooler indoor coil, condensing and releasing the absorbed heat into your home.

Rather than needing an air conditioner and a furnace, a heat pump works both ways, heating and cooling your home and saving you money on your energy bills.

Not all homes are suitable for a heat pump system, so speak to an HVAC professional about the options.

Benefits of an Energy-Efficient Heat Pump

There are several benefits to having a heat pump installed, including the following:

Lower Utility Bills

Heat pumps use less energy than other heating systems, so you can save money on your energy bills each month. Combined with the available rebates and tax credits, this is a great way to save money now and in the future.

Rather than needing an air conditioner and a furnace, a heat pump works both ways, heating and cooling your home and saving you money on your energy bills.

Not all homes are suitable for a heat pump system, so speak to an HVAC professional about the options.

State Requirements

In some areas, you are now required to use greener forms of energy as they shift toward a zero-carbon emissions policy. A heat pump is an ideal way to meet State required energy regulations.

Eco-Friendly 

Switching to a heat pump means burning less fuel and using natural sources to heat your home. This has a positive impact on the environment and helps build a more sustainable world for future generations.

Which Systems Qualify?

Not sure if your preferred heat pump or HVAC system is suitable for the rebates on heat pump purchase? There are several criteria to meet to qualify.

Energy Star Certified

Energy Star products have been through rigorous testing in over 500 EPA approved to gain their energy-efficiency label. To be guaranteed you're getting a government-approved product suitable for tax credit or rebate, always look for the Energy Star Certification.

Different Systems Covered

If you need more time before switching to a heat pump, or if a heat pump isn't suitable for your home, other systems qualify for the savings. As long as they are eligible as energy-efficient, you could install a new HVAC system, furnace, or boiler.

CEE Tier 1 & 2 Requirements

Along with the Energy Star Certification, products eligible for the savings must be within Consortium for Energy Efficiency (CEE) Tiers 1-2. For example, if you opt for a split system ducted heat pump, it must fall in Tier 1. Whereas non-ducted heat pumps Tier 2.

 

What Federal Tax Credits Are Available?

Tax 25C

This tax credit is a nonbusiness property energy credit. It allows you to claim up to 30% capped tax credit for installing energy-efficient products like heat pumps, water heaters, and electric panels or for carrying out energy audits.

The excellent news about this credit is that it's not a lifetime credit. It renews yearly. Anyone with adequate tax liability to offset can qualify for Tax 25C.

Tax Credit Amounts

There are various amounts allocated to different products and appliances. The principal payments are as follows:

• Heat Pumps - up to $2,000
• Air Conditioners - up to $600
• Furnaces - up to $600

There are other appliances eligible for tax credits. For the complete list, check out the Inflation Reduction Act factsheet.

HEEHRA Act Energy Efficiency Rebates

For lower-income households, the IRA implemented the High-Efficiency Electric Home Rebate Act to encourage homeowners to use eco-friendly energy sources.

You qualify for the program if your income is 80% below the average in your area. By meeting that qualification, you receive a rebate of up to $8,000 for your heat pump purchase.

Additionally, households with income levels ranging from 81% to 150% of the average income in their area can claim up to 50% of the cost of a Federal Energy efficient heat pump.

And it's not only heat pumps that HEERA covers. It also covers the following:

• Electric stove/cooker top $640
• Electric wiring $2,500
• Weatherization $1,600
• Heat Pump Water Heater $1,700

Plus, other rebates for making your home more energy efficient.

Save More with Local Energy Rebates

There are even more ways to save money when you switch to greener energy sources. For example, different state energy offices offer incentives and rebates as well as Federal incentives. Check out your local area to see if there are other grants or financial options.

Equally, the Energy Star Rebate Finder helps you discover if you can benefit from a rebate on any Energy Star Certified products and appliances.

Finally, check with your local utility company, as they could also offer rebates to help you make savings on your energy bills. Making an effort to find out could save you dollars.

Combining State and Federal Rebates

There is still some uncertainty about how the combination of State and Federal rebates will play out. However, the general consensus is that it will be upheld as long as your state rebate hasn't been funded with Federal money.

It's advisable to check with your State's energy advisors to learn more about combining state and federal rebates.

How to Apply for Tax Credits and Rebates

Knowing whether you qualify for tax credits or the rebate system before applying is essential.

A rebate is a discount when purchasing your heat pump or other energy-efficient appliance. As mentioned above, these HEEHRA rebates are only issued to low or moderate-income households. You ask a contractor to do the work, they carry out the administration, and you get money taken off the final project costs.

However, if your income is too high to be eligible for the rebates, you still qualify for a tax credit up to the value of 30%. So instead of being a direct reduction on the costs, you pay full price during replacement installation and then apply for the credit via your tax return. So, you pay less tax, or you get a larger tax refund.

Can't get your head around how to apply for tax credits? The best thing to do is consult your tax advisor. Getting an expert to help you fill in your tax credit application is the best way to ensure you receive the amount you're entitled to claim.

The Inflation Reduction Act and the boost to tax credits and rebates are positive moves we can all benefit from. To learn more about Federal Energy Efficient heat pumps,