Category: Inflation Reduction Act

Claim Your $2,000 Tax Credit!

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Yay! It’s tax time!

You may be eligible for deductions to your 2023 federal tax bill! The Inflation Reduction Act (IRA) was signed into law by the Biden Administration in August of 2022. The IRA provides you with tax credits, direct reductions of your tax liability or the amount your 1040 tells you that you owe the IRS, for installing various energy efficiency upgrades to your primary residence. Did you install a cold climate heat pump in your home in 2023? For an air source heat pump installed this past year, the credit is as high as $2,000, or 30% of the total cost of the heat pump and its installation. Nearly everyone who installs a heat pump will get the full $2000 credit as the cost of an average heat pump and wiring stands around $7,500. 

The IRA tax credits fall under the name ‘Energy Efficient Home Improvement Credit (25C)’ and may include other improvements that might have been part of your upgrade list. For example, did your heat pump installation require a new electrical panel or sub-panel with new 200 amp service? You can receive 30% of these costs as well, including labor, for up to $600 in additional credit. Wiring of the heat pump is not eligible. Did you install any exterior doors, windows, or maybe insulation? The purchase cost of these upgrades are all on the credit list! For full tax credit details, take a look at our IRA FAQ page. Credits can add up to an additional $1,200 on top of the heat pump tax credit, maxing out in 2023 at $3,200.

To claim your credits, fill out form 5695, Residential Energy Credits. Your cold climate heat pump get listed on line 22a. Find the form instructions here. The credits are applicable for the year the improvements were made, not the year when the expenses were paid. 

These tax credits you’ve hopefully heard of are different from the IRA rebates that are starting to be talked about. IRA tax credits lower your total tax owed (if you owe any to begin with) and IRA rebates in part will lower the up-front prices of energy improvements. IRA rebates are not yet available and may not be available until later this year. Alaska Heat Smart will have more detailed information on IRA rebates in an upcoming post. Call us for me information at 907.500.5050.

Looking for other financial assistance to help you with the addition of a heat pump, help you save money, enjoy a warmer and drier house, and move beyond oil? Check out our diverse Financial Assistance Programs. Alaska Heat Smart staff do not claim in any way to be tax experts. We strongly encourage you to consult your tax professional for any questions or concerns that you may have with filing your 1040.

Top Down Support for Heat Pump Production

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Biden-Harris Administration Announces $169 Million to Accelerate Electric Heat Pump Manufacturing as Part of Investing in America Agenda

https://www.energy.gov/articles/biden-harris-administration-announces-169-million-accelerate-electric-heat-pump

“Getting more American-made electric heat pumps on the market will help families and businesses save money with efficient heating and cooling technology,” said U.S. Secretary of Energy Jennifer M. Granholm. “Thanks to President Biden’s Investing in America agenda, these investments will create thousands of high-quality, good-paying manufacturing jobs and strengthen America’s energy supply chain, while creating healthier indoor spaces through home-grown clean energy technologies.”

“Today’s Defense Production Act funds for heat pump manufacturing show that President Biden is treating climate change as the crisis it is,” said John Podesta, Senior Advisor to the President for Clean Energy Innovation and Implementation. “These awards will grow domestic manufacturing, create good-paying jobs, and boost American competitiveness in industries of the future.”

Heat pumps are critical to reducing the nation’s reliance on fossil fuels, bolstering national security, and boosting energy independence to strengthen national defense, lowering consumer energy costs, improving energy efficiency, and mitigating the climate crisis.  This portfolio of selections will boost manufacturing of electric heat pump (air-to-air, geothermal, and air-to-water) and key components (compressors and refrigerants) This portfolio will lead to manufacturing in 13 states.

How the Inflation Reduction Act Can Save You Money

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A Consumer’s Guide – The New York Times

Alaska Heat Smart is finding many IRA articles out there in internet land. When we stumble upon a good one, we’ll share it with you. This summary of the IRA’s diverse credits and rebates in the New York Times is easily digested and is clear and concise. There should be no paywall for this article. If you come upon one in using the link below, copy and paste the headline into a new browser window.

Many American consumers are now eligible to save thousands of dollars when they buy an electric car, heat pump, solar panels or energy-efficient appliances.

How the Inflation Reduction Act Can Save You Money: A Consumer’s Guide – The New York Times

Also, be sure to visit Alaska Heat Smart’s FAQ page on the Inflation Reduction Act where we regularly update the most pressing questions and answers that have come our way over the past month or two.

Your Electric Bank Account!

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The Inflation Reduction Act is live!

Tax credits available under the August 2022 Inflation Reduction Act are now yours! There are no income limits to block the availability of these credits. If you incur tax liability in 2023, you may be eligible for some of these fantastic financial catalysts for energy efficiency action. And, these credits are not limited to just 2023! Unless something changes at a congressional level, these credits reset every year until 2032. This means that a bit of project planning will be to your benefit. By organizing your energy efficiency home improvement projects, you may be able to take $1,200 in tax credits for a number of years. You cannot carry over any unused credit but you can stagger your expenditures to enable the credits over multiple years.

The Inflation Reduction Act tax credits are like having your own ‘electric bank account’!

Rewiring America

For example, you could upgrade your electrical panel this year to allow for the addition of a heat pump, grabbing the $600 panel credit and the 30% of cost (up to $2,000) heat pump credit. (Note: the 30 percent tax credit up to $600 for an electrical panel upgrade is only an option if the panel upgraded in conjunction with another upgrade, like a heat pump.) Next year, a bit of air sealing and insulation work will allow another $1,200 in tax credit. Maybe the following year you upgrade a door and a couple of windows, netting yet another $1,200 in credit. By working with the annual cap of $1,200, this credit can be applied to numerous cost-saving improvements, saving you thousands of dollars and lowering annual energy costs

Here are some great resources to get you thinking about your home improvements, energy efficiency, and IRA tax credits:

OUR FAVORITE! https://www.rewiringamerica.org/app/ira-calculator

Alaska Heat Smart’s IRA FAQ page

DOE: Making Our Homes More Efficient: Clean Energy Tax Credits for Consumers

https://www.rewiringamerica.org/

https://www.irs.gov/credits-deductions/frequently-asked-questions-about-energy-efficient-home-improvements-and-residential-clean-energy-property-credits-qualifying-residence

https://www.washingtonpost.com/climate-solutions/2022/12/29/climate-tax-credits-clean-energy/

Upfront Discounts and Energy Efficiency Rebates

These very generous financial incentives will not be available until later into 2023 or even sometime in 2024. These upfront cost discounts differ from tax credits in that your gross household may not exceed designated income caps. While we have not yet seen these final income caps, we assume that they will be similar to those that apply to the Alaska Heat Smart Clean Heat Incentive Program, though the upper limit of the IRA rebates will be a bit more generous.

Alaska Heat Smart is increasingly asked whether or not a homeowner should hold off on a heat pump installation or weatherization upgrades, and choose to hold out for the IRA rebates. This is a personal decision and there are many factors that come into play. How long do you want to wait to start your savings? How imminent is your boiler or furnace failure? Can you go another winter with the systems you currently have? Should you act now and combine existing benefit programs, taking advantage of the rebates one they become available?

If in doubt, be sure to take a look at our existing programs. It is possible to mix and match some of these, allowing you to act now. The combination of a heat pump incentive, a tax credit, and even a low interest heat pump loan can you have you saving in no time.