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THE INFLATION REDUCTION ACT (IRA)

Unprecedented Federal energy efficiency improvement incentives for homeowners, builders and building owners

The Inflation Reduction Act of 2022 (IRA) is the largest ever climate investment by the Federal Government in American history, projected to reduce greenhouse gas (GHG) by 31% to 44% below the 2005 levels by 2030. The IRA will also bring energy bill relief to U.S. households by incentivizing the adoption of more efficient, all-electric appliances. Importantly, the IRA recognizes the key role of highly efficient, variable-capacity heat pumps in slashing domestic GHG emissions and lowering energy costs for Americans.

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Stay up to date and discover how our high-efficiency heat pumps are improving the way we live and the communities we live in.
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Residential Programs Benefitting

U.S. Homeowners

HEEHRP
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Single-home heat pump cost offset is $8,000
Single-home maximum cost offset is $14,000
HOMES
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Homes with energy reduction of 35% are eligible for maximum rebate of $4,000.
25C
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A 10-year extension and expansion of existing tax credit - now 30% up to $2,000 for qualifying heat pump

 

High Efficiency Electric Home Rebate Program (HEEHRP)

  • Allocates $4.5 billion in grants to states and tribal governments for home energy improvement projects including point-of-sale heat pump rebates.
  • 10-year program, administered through State Energy Offices, likely to start mid-2023.
    • Parameters of state-administered programs may vary.
  • Single-home maximum cost offset is $14,000
  • Caps per qualified equipment type:
    • $8,000 for a heat pump.
    • $1,750 for a heat pump water heater.
    • $1,600 for insulation, air sealing, and ventilation.
    • $2,500 for electric wiring.
    • $4,000 for an electric load center upgrade.
    • $840 for a stove, cooktop, range, oven, or heat pump clothes dryer.
  • Up to a $500 rebate is available for our contractors per heat pump installation.
  • ENERGY STAR® will be the criteria to qualify heat pump systems.
  • Designed to support low-to-moderate income (LMI) households.
    • Example:
      • Households making up to 80% of local median income are eligible to receive a 100% rebate of up to $8,000 on the cost of heat pump installation.
      • Moderate-income households (making 80-150% of local median) are eligible for a 50% rebate up to the same limits.
        • E.g., To claim up to the cap of $8,000, must spend $16,000 in heat pump installation.
      • Households with incomes above 150% of local median are not eligible.
  • No stacking with other federal or state grants/rebates on same project. There are options for combining rebates. See possible scenarios below in the FAQ section.

HOMES Rebate Program

  • Provides funding to DOE for state energy offices ($4.3 billion) to develop and implement a rebate program to homeowners and aggregators for whole-house energy saving retrofits.
  • Based on modeled energy savings for single and multifamily.
  • Rebate levels:
    • Homes with energy reduction of 20% are eligible for maximum rebate of $2,000, or half the cost of the retrofit project (whichever is less).
    • Homes with energy reduction of 35% are eligible for maximum rebate of $4,000.
    • Homes with energy reduction of 35% and qualify as lower income (<80% of local median income) are eligible for maximum rebate of $8,000.

Energy Efficient Home Improvement (25C) Tax Credit

  • A 10-year extension and expansion of existing 10% tax credit to 30%.
  • Begins with tax year 2023 (January 1, 2023), claim credit on your 2023 taxes.
  • Up to $600 per item: breaker panel, insulation, fossil fuel systems (meeting elevated efficiency limits) with maximum of $1,200 tax credit.
  • However, tax credit increases up to $2,000 max when adding a qualified heat pump installation to the project.*
    • The heat pump system must meet or exceed the highest performance tier set by the Consortium for Energy Efficiency (CEE).**
  • Households may claim annually through 2032.
  • You can receive a tax credit and a rebate for the same project.

*Interpretation of this provision varies across media channels. We're actively pursuing a universally accepted interpretation.

**Efforts are underway to simplify the efficiency performance qualifications. Check back soon for updates.

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Residential Program Benefitting

Builders and Contractors

45L
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Single Family Homes:
$2,500 for homes that meet ENERGY STAR standards;
$5,000 for zero energy ready homes.
45L
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Multifamily Dwellings:
$500 per unit that meets ENERGY STAR standards;
$1,000 per unit for zero energy ready units.
45L
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Multifamily Dwellings:
$2,500 per unit that meets ENERGY STAR standards;
$5,000 per unit for zero energy ready units. (conditional)

New Energy Efficient Home Tax Credit (45L) for New Construction

  • Eligibility: Contractors that build and sell homes that meet specified energy efficiency requirements
    • Single Family Homes: $2,500 for homes that meet ENERGY STAR standards; $5,000 for zero energy ready homes.
    • Multifamily Dwellings: $500 per unit that meets ENERGY STAR standards; $1,000 per unit for zero energy ready units.
    • Multifamily Dwellings: $2,500 per unit that meets ENERGY STAR standards; $5,000 per unit for zero energy ready units (condition: laborers and mechanics employ contractors and subcontractors that pay prevailing wages.)
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Commercial Program Benefitting

Building Owners and Architects

179D
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Energy reduction (ER) will be lowered from 50% to 25% compared to the most recent ASHRAE Standard 90.1. 
179D
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Deduction increased to $.50/sq ft, plus $.02 for each percentage point above 25% ER, not to exceed $1.00/sq ft. (conditional)

 

179D
IRA tax deduction icon
Allows deductions to be allocated to any non-profits, tribal properties, and REITs, and it includes the existing provision for publicly funded projects.

Energy Efficient Commercial Building Deduction (179D) Changes

  • Beginning January 1, 2023, the deduction will be increased.
  • Energy reduction (ER) will be lowered from 50% to 25% compared to the most recent ASHRAE Standard 90.1, determination no later than four years prior to the placed-in-service date.
  • Tax deduction levels:
    • $.50 per square foot, plus $.02 for each percentage point above 25% ER, not to exceed $1.00 per square foot.
    • “Prevailing wage” provision: taxpayers can claim the bonus deduction for $2.50 per square foot, plus $.10 per square foot for each percentage point above 25% ER, not to exceed $5.00 per square foot if the prevailing wage requirement is met (any laborers, workers, contractors, and subcontractors who worked on the project were paid wages not less than base wages determined by local labor authorities).
    • The Act introduces new qualified retrofit plan qualifications and removes partial benefit allowances.
    • 179D’s expansion will allow 179D deductions to be allocated to any non-profits, tribal properties, and real-estate investment trusts (REITs), and it includes the existing provision for publicly funded projects.
Provision Name
New IRC Section 179D
Effective from January 1, 2023
Old IRC Section 179D
Effective from January 1, 2006 - December 31, 2022

Eligibility

  • Commercial building owners
  • Designers of building owned by:
    • Government Entities
    • Not-for-profit organizations
    • Churches and other religious organizations
    • Tribal organizations
    • Not-for-profit schools and universities
  • REITs

Eligibility

  • Commercial building owners
  • Designers of buildings owned by government entities

Tax Deduction Range

Base Deduction: Sliding scale of 50 cents/sqft for energy savings of 25% and up to $1/sqft for energy savings of 50% or greater

Bonus Deduction: Sliding scale of $2.50/sqft for energy savings of 25% and up to $5/sqft for energy savings of 50% or greater

Tax Deduction Range

63 cents/sqft - $1.88/sqft per eligible system

Deduction Cap

A three-year deduction cap that allows IRC Section 179D to be claimed on buildings if the previous full deduction claim occurred more than three taxable years ago

Deduction Cap

Since 2006, there's been a lifetime cap of $1.80/sqft or $1.88/sqft with inflation adjustment

Technical Requirements

ASHRAE standard in effect from four years prior to completion of construction

Technical Requirements

ASHRAE standard in effect from two years prior to start of construction

Bonus Deduction

  • Meet local prevailing wage
  • Meet apprenticeship percentage hours for up to 15% of labor hours

Bonus Deduction

Not applicable

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Answers to Common Questions

Generally, when do the incentive programs begin?

Most programs start on January 1, 2023, especially the tax credits and deductions. The 25C tax credit is in place today (at $500 max), but the expansion starts for projects billed as of January 1, 2023. The HEEHRP rebates will possibly be ready in the middle of 2023, depending on each state's delivery schedule.

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Will each state operate differently?

For the rebate programs, states will have to adhere to the criteria in the law (i.e. efficiency performance standards) but will be able to alter the allocations, except when exceeding the amounts and percentages specified in the law. The tax credits are are available directly through your federal tax deductions. Consult your tax advisor for advice.

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What is the 25C tax credit?

Starting in 2023, homeowners are eligible for a tax credit of 30% of the cost, up to a $2,000, for heat pumps, and/or heat-pump water heater, in accordance with section 25C of the US tax code. Only certain models qualify for the tax credit, and you must have a tax liability from which to reduce your taxes. Consult your tax advisor for advice.

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What is the 45L tax credit for newly built homes?

The 45L tax credit is aimed at contractors that build and sell qualifying energy-efficient new homes that meet specified energy efficiency requirements.  If a new home meets the provisions of the ENERGY STAR® New Home program, the rebate is $2,500.  Likewise, the rebate is $5,000 if the new home meets the Net Zero Ready designation from the Department of Energy.

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What is the High-Efficiency Electric Home Rebate program (HEEHRP)?

HEEHRP is for lower-to-middle income homeowners and includes up to $8,000 in rebates for heat pumps, with additional rebates for electrical panel upgrades and other improvements. The cap is $14,000 maximum. Low income (making less than 80% area median income [AMI]) homeowners can receive 100% of the project cost in a rebate. Moderate income homeowners (making 80% to 150% AMI) can receive 50% of project cost in a rebate.

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What is the HOMES Act rebate program?

The HOMES Act provides rebates for all homeowners based on modeled energy savings for efficiency improvements, including heat pumps. If the improvement measures yield 20% modeled savings, a homeowner can receive a $2,000 rebate, and $4,000 modeling in excess of 35% savings.  This rebate is doubled for lower income homeowners and building owners with lower income occupants to $4,000 and $8,000.

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Which Mitsubishi Electric, Trane/Mitsubishi Electric, or American Standard/Mitsubishi Electric models are eligible, and how will I know?

Currently, in order to qualify for the 25C tax credit, equipment must meet the the Consortium for Energy Efficiency (CEE) highest tier. In order to qualify for the HEEHRP rebate program, a homeowner must qualify as low-to-moderate income (LMI) and equipment must meet or exceed the ENERGY STAR® 6.1 specification. METUS will publish a list of qualifying equipment for both CEE and ENERGY STAR soon.

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For how long will these rebates be available?

Our current understanding is that the funding for the rebates specified in the IRA will be available on a first-come-first-served basis until funding is depleted.

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What is the HOMES rebate program?

Congress specified $4.3B for the HOMES Act, available through 2031. The HOMES Act provides rebates for homes that cut energy by 20% across their whole home. Homeowners would be eligible for a maximum rebate of $2,000 or half the cost of the retrofit project, whichever is less. That dollar threshold rises to $4,000 for those who cut energy by at least 35%. These rebates are double — up to $4,000 and $8,000, respectively — for households with income lower than 80% of an area’s median income (AMI).

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