PREP Talks: Dori Drachman – How the Inflation Reduction Act can help you make home energy improvements

  • Dori Drachman —COURTESY PHOTO

For the Ledger-Transcript
Published: 9/23/2022 9:02:25 AM

When the Peterborough Renewable Energy Planning (PREP) Team first started developing a plan to transition all of the town’s electricity, heat and transportation to renewable energy, the idea that the federal government would help us reach our goal seemed like wishful thinking. But this summer, with the slimmest of margins, Congress passed the Inflation Reduction Act (IRA), a groundbreaking climate law that will direct almost $370 billion toward both the manufacturing and the purchasing of climate-friendly products.

It is loaded with incentives that will help us make the switch to renewables, electrify our homes and cars and make our buildings more energy-efficient. This said, accessing the incentives will not always be straightforward. There are layers of requirements built into them, for both the people purchasing the products and for the products themselves. The 700-page law contains much more than this article can adequately explain, so the article will focus on home-energy improvements.

Tax credits and rebates are the primary tools the IRA uses to help residents make needed energy upgrades. Tax credits for home improvements are generally available to all homeowners, while rebates have an income limit. Tax credits offer larger discounts than more-familiar tax deductions, so these credits will have a big impact.

To understand the difference between a tax deduction, a tax credit and a rebate, let’s take an example of a couple that earns $90,000 a year. If they get a $5,000 tax deduction, they take $5,000 off their income and calculate the tax on $85,000. This might result in saving several hundred dollars. However, if they get a tax credit, they figure out how much they owe based on $90,000 and then subtract $5,000 from the amount they owe. If the couple owes less than $5,000 in taxes, the credit can carry over to subsequent years. A rebate allows the couple to take off $5,000 when they make the purchase rather than wait until they file their taxes. 

So what are some of the tax credits and rebates in the IRA that can help residents make their homes more efficient and renewable? And what requirements need to be met to take advantage of them? Below are some highlights.

Rooftop solar tax credit restored

For several years, homeowners and businesses could claim a 30 percent tax credit when they bought solar panels. But the law that created this tax credit included a step-down process that decreased the tax credit starting in 2021 and, for residents, eliminated it by 2024. The IRA restores the 30 percent tax credit, effective Jan. 1, 2022, until 2032, with decreasing credits in 2033 and 2034. Even better, those who brought solar panels online in 2022 before the IRA passed will still be eligible for the 30 percent credit.

Tax credit for battery storage

The IRA raises the tax credit to 30 percent for batteries that store at least 3 kWh of electricity. In addition, now the tax credit is available even if the batteries collect electricity from the grid rather than a solar array. 

Weatherization and energy efficiency

The weatherization incentives include both tax credits and rebates. Many of them are capped on an annual basis, so you’ll need to spread out your home improvements over a few years in order to pay the least out of pocket. 

Tax credits include 30 percent for weatherization, including $150 for energy audits, $600 for windows, $500 for doors, and $600 for electrical panel upgrades, up to $1,200 annually starting in 2023. Credits also include $2,000 for heat pumps and biomass boilers. The previous 10 percent tax credit and $500 lifetime limit still applies for 2022.

Rebates include up to a total of $14,000 for home-efficiency upgrades, including up to $8,000 for heat pumps, $1,750 for heat-pump water heaters, and $840 for electric stoves, including induction ranges. Rebates also include up to $4,000 for electrical panel upgrades. To be eligible for rebates, recipients must earn less than 150 percent of median local income.

Many more incentives are created by the IRA, from buying electric vehicles to establishing a national green bank to investing in rural renewable energy projects. To learn more about the IRA, see rewiringamerica.org/app/ira-calculator and bipartisanpolicy.org/blog/inflation-reduction-act-summary-energy-climate-provisions.

PREP Talks is a series of articles written by members of the Peterborough Renewable Energy Planning (PREP) Team who have been tasked by town mandate to deliver a plan by the end of the year for the town to transition to 100 percent renewable electricity by 2030 and to 100 percent transportation and heating by 2050. In these articles the team will share the results of their research, analysis and eventually recommendations for the plan. 

Dori Drachman is co-coordinator of the PREP Team and co-chair of the Monadnock Sustainability Hub.


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