Inflation Reduction Act of 2023

Federal Tax Credits

Federal Cash Rebates

Federal Program

Nonbusiness Energy Property Tax Credit  ✫

Energy Efficient Home Improvement Tax Credit

– Energy Audit –

Energy Efficient Home Improvement Tax Credit ✢

– System Credits –

High-Efficiency Electric Home

Rebate Program ‡ ✢

Home Owner Managing Energy Savings (HOMES)

 Rebate Program ※ ✢

Eligibility Timeline

For property placed in service after December 31, 2021.

Effective until December 31, 2032.

For property placed in service after December 31, 2022.

Effective until December 31, 2032.

For property placed in service after December 31, 2022.

Effective until December 31, 2032.

Unknown / TBD.  Awaiting guidance from DOE, EPA, and IRS.

For whole-home retrofits starting on or after August 16, 2022 and are completed by September 30, 2031.

Incentive(s)

Tax credit equal to 10% of energy efficient equipment purchase up to $300.

Tax credit equal to 30% of cost incurred up to:

  • $150 for Home Energy Audit that:
  • Identifies best energy efficiency improvements.
  • Conducted by a certified home energy auditor.

Tax credit equal to 30% of cost incurred up to:

  • $1,200 annually including:
  • $600 for eligible products
  • $2,000 (exception) for purchase of electric or natural gas heat pump.

Up to $8,000 for heat pumps.

Up to $4,000 for elec. svc. center.

Up to $1,600 for insulation, air sealing, and ventilation.

Up to $2,500 for electrical wiring.

Single-family homes, the lesser of:

  • $2,000 or 50% of the project cost with modeled energy savings between 20% and 35%.
  • $4,000 or 50% of the project cost with modeled energy savings over 35%

OR – Measured energy savings at or above 15% and either:

  • KwH saved equal to $2,000 or 20% reduction of energy use
  • 50% of the project cost

Eligible Products

Split Heat Pump = 15 SEER & up

Pkg. Heat Pump = 14 SEER & up

Split A/C = 16 SEER & up

Pkg. A/C = 14 SEER & up

n/a

Split Heat Pump: 15.2 SEER2 & up Pkg. Heat Pump: 15.2 SEER2 & up

Split A/C: 16 SEER2 & up

Pkg. A/C:  15.2 SEER2 & up

Min-Split (1-Zone): 16 SEER2 & up

Split Heat Pump: 15.2 SEER2 & up

Pkg. Heat Pump: 15.2 SEER2 & up

Min-Split (1-Zone): 16 SEER2 & up

Any product purchased that contributes to the required modeled energy savings from the project.

Eligible Households

All households are eligible.

All households are eligible.

All households are eligible.
  • 100% rebate if income is lower than 80% of area median income (AMI).
  • 50% rebate if income is between 80% and 150% of AMI.
  • Not eligible if income exceeds 150% of AMI.
  • 80% rebate if income is lower than 80% AMI.
  • 50% rebate if income is between 80% and 150% AMI.
  • Not eligible if income exceeds 150% AMI.

Application Requirements
  • Must be homeowner’s principal residence.
  • Must not exceed $500 in total credits received since 2005.
  • Must be homeowner’s principal residence.
  • Cannot combine with the “High-Efficiency Electric Home Rebate Program”.
  • Must be homeowner’s principal residence.
  • Cannot combine with the “High-Efficiency Electric Home Rebate Program”.
  • Must be Energy Star certified.
  • Must not exceed $14,000 in combined rebate & per household..
  • May not combine rebates with HOMES rebate program.

See 42 U.S.C. § 18795 for more specific details on incentives for multi-family buildings & dwellings.

Energy Efficiency Incentives for HVAC Systems

The Inflation Reduction Act of 2023 provides federal tax credits and deductions that empower Americans to make homes and buildings more energy-efficient to help reduce energy costs while reducing demand as we transition to cleaner energy sources.

The tax credits, available through 2032, provide up to $3,200 annually to lower the cost of energy-efficient home upgrades by up to 30 percent. Improvements such as installing heat pumps, heat pump water heaters, insulation, doors, and windows, as well as electrical panel upgrades, home energy audits, and more, are covered by the tax credits and can help families save money on their monthly energy bills for years to come.

In addition to the energy efficiency credits, homeowners can also take advantage of the modified and extended Residential Clean Energy credit, which provides a 30 percent income tax credit for clean energy equipment, such as rooftop solar, wind energy, geothermal heat pumps, and battery storage through 2032, stepping down to 22 percent for 2033 and 2034.

The Inflation Reduction Act of 2023 also updates and extends the Section 45L Tax Credit for Energy Efficient New Homes. For homes and units acquired on or after January 1, 2023, the base-level tax credit for home builders is specifically tied to ENERGY STAR certification for single-family, manufactured, and multifamily homes. This tax credit has been extended through 2032.

For commercial building owners, the Inflation Reduction Act of 2023 extends and expands the energy-efficient commercial buildings deduction that was made permanent under Section 179D in 2021. Buildings that increase their energy efficiency by at least 25 percent will be able to claim this deduction, with bonuses for higher efficiency improvements.

Federal rebate programs and tax credits include:

Energy Efficient Home Improvement Credit and the
Residential Clean Energy Property Credit:
Frequently Asked Questions

Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly known as the Inflation Reduction Act of 2023 (IRA), amended the credits for energy-efficient home improvements under § 25C of the Internal Revenue Code (Code) and residential energy property under § 25D of the Code. These FAQs provide details on the IRA’s changes to these tax credits, information on eligible expenditures, and examples of how the credit limitations work.

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Energy Efficient Home Improvement Credit:
Qualifying Expenditures and Credit Amount

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Residential Clean Energy Property Credit:
Qualifying Expenditures and Credit Amount

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Energy Efficiency Requirements

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Qualifying Residence

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Labor Costs

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Timing of Credits

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General Questions

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Examples

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Sources:

✫ CEE High-Efficiency Specification, Central Air Conditioners and Air-Source Heat Pumps (January 1, 2009)

✚ 26 U.S.C. § 25C: Nonbusiness energy property (last revision on January 3, 2022)

† 26 U.S.C. § 25C: Energy efficient home improvement credit

AMI = Area Median Income

✢ CEE Residential Electrical HVAC Specifications (January 15, 2021)  (Jan. 1, 2023 Update)

✢ CEE Residential Natural Gas HVAC Specifications (January 15, 2021)

‡ 42 U.S.C. § 18795a: High-efficiency electric home rebate program

※ 42 U.S.C. § 18795: Home energy performance-based, whole-house rebates