Inflation Reduction Act Tax Incentives for Energy (not related to PV+ESS and EVs)

[holeydonut]

I've been researching some of the energy-related tax incentives in the latest Inflation Reduction Act (IRA). While I am clearly an idiot (have you read my posts on TMC? they're usually just me ranting about PG&E sucking or talking about blade disconnects), I figure it could be useful to share what I've found so far. I want to make sure we're 100% on the same page... this thread is posted by an idiot. So if you follow what this idiot says without researching on your own, you too could be an idiot.

Also, I think major aspects of the IRA are still in flux, so some stuff may change. But as of September 6, 2022 there seems to be some stuff you can start to plan for 2023.

This thread is not meant to be a discussion of the Residential Clean Energy Credit (for solar and ESS) or the Electric Vehicle (new/used cars). I just want to focus in the other energy-related aspects which include:

1) Home Energy Rebates (aka HOMES rebate program; probably administrated by the contractor)
and
2) High-Efficiency Rebates (aka EFFICIENCY rebate program; probably administrated by the contractor)
and
3) The Energy Efficient Home Improvement Credit which I will shorten as EEHIC

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1) Regarding the HOMES rebate program... TLDR it is $4,000 for normal income and $8,000 for low income. To get half the value, you have to increase the energy efficiency of certain things in your home by 20%. To get the full value you have to increase the efficiency of those things by 35%.

A few months ago I posted about how terrible it was that there were no incentives to encourage people to make their home more energy efficient. HOMES is meant to address this by subsidizing stuff that the DOE or EPA (DOI) determines to add marginal value. So, executing this will be similar to the Energy Upgrade California program from a few years ago. Basically certain improvements will have a designated improvement to baseline efficiency (probably measured with a HERS test or home energy audit), and contractors will be able to apply this HOMES rebate to the purchase price based on how the homeowner qualifies. Unfortunately the DOE hasn't published the list of improvements or efficiencies yet, so it's hard to plan for 2023 at this time.

My understanding is HOMES is meant for stuff like insulation in the walls or insulation along HVAC ducting. But it doesn't seem to cover the HVAC itself or stuff like windows and doors. To get up to $8,000 You have to have a "reported to the IRS" income that is 80% or less of the median in your area and do the +35% improvement projects. To check your median income, use this link from Fannie Mae: Area Median Income Lookup Tool. 80% is usually called the "LI or HomeReady Income Limit". If your income is > 80% the median, you can still get up to $4,000; so keep your eyes open for the DOE or EPA to publish whatever qualifies for HOMES rebates in 2023.

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2) Regarding the EFFICIENCY rebate program... TLDR it is worth up to $14,000 per year if your income is up to 150% the Median. To get 100% value rebates, you have to be below 80% of the median income. If you are 80% to 150% of the median income, you can get a 50% value rebate. If your income is > 150% the median, you get no rebates. And of course the DOE or EPA will probably need to provide the list of qualifying things to get any money.

But, it should cover up to:
> $1,750 for heat pump water heater
> $4,000 for a load center or main panel upgrade
> $1,600 for insulation, air sealing, and ventilation upgrades (whole house fans apparently don't count though)
> $2,500 for electric wiring upgrades
> $8,000 for heat pump HVAC upgrade (please note that "mini splits" are so far not expressly considered "heat pumps", but the DOE or EPA hasn't officially determined the list yet. Make sure you contact the DOE or EPA if you think mini splits are heat pumps)

A few months ago I posted about how terrible it was that there were no incentives to encourage people to make their appliances more energy efficient or to convert way from using natural gas. EFFICIENCY is meant to address this by subsidizing stuff that the DOE or EPA determines to add marginal value to a the appliance energy footprint. So, executing this will be similar to the Energy Upgrade California program from a few years ago. Basically certain improvements will have a designated improvement to baseline efficiency (probably measured with a HERS test or home energy audit), and contractors will be able to apply this EFFICIENCY rebate to the purchase price based on how the homeowner qualifies. Unfortunately the DOE or EPA hasn't published the list of improvements or efficiencies yet, so it's hard to plan for 2023 at this time.

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3) Regarding the EEHIC tax incentive ... TLDR it is worth up to $1,200 per year of most qualifying things; but $2,000 for a heat pump. There doesn't appear to be any income limit. The EEHIC is a flat 30% on qualifying investment when someone files their federal taxes. Also, it's not clear to me if you're allowed to double-dip the after-rebate costs from the above with this tax credit. I believe the IRS will publish a qualifying list of efficient makes and models; so you can't apply this credit to any item just because you think it is efficient. This is a big differentiator compared to the solar and PV tax credit where there is no restriction on PV or ESS makes and models.

Excluding heat pumps for a moment, the EEHIC should cover up to a total of $1,200 on a per-annum basis for qualifying efficient products:
> $600 for windows and patio doors on the energy.gov "Most Efficient" list. I believe the window U-factor needs to be 0.20 or less and the solar heat gain SHGC needs to be 0.4 or less excluding the North Zone
> $500 for exterior doors (up to 2 doors). I don't know how they will qualify which doors are efficient or not?
> $600 for "efficient residential energy property" which is supposed to include HVAC equipment, water heaters, boilers, biomass burners, and even an electric load center). Again, keep your eyes open for a "list" that hopefully is published in 2023.
> $1,200 for insulation that meets certain criteria which like the above doesn't seem to be defined yet in the tax code.
> $150 for a home energy audit.

For just heat pumps (again, technically mini splits aren't heat pumps, so make sure you talk to your accountant about this one), the per year EEHIC on a qualifying heat pump is $2,000.

So yeah, if you upgrade all your windows and it costs $15,000 you're going to be losing tax incentive value since you'll only get $600 worth of incentive in the year you spend $15,000. Instead, you're encouraged to spread your window upgrade over 7 years so you get the $600 each year over 7 years (assuming the program remains funded for that long heh). And, the property has to be placed in service after 12/31/2022. There is no retroactive treatment if you already made the investments.

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[jjrandorin]

(moderator note)

While I think this likely should live in the energy policy subforum, I am going to leave it here for now as threads in that subforum tend to get "re directed" as far as discussion about a specific topic goes, to discussion outside of the policies themselves.

Its also clear that the intention of this thread was not to discuss either the solar, or EV provisions of this policy (as stated by the OP).

This is a note that I will likely move any posts on the solar / batteries portion, or the EV portion (neither of which this thread is about) to other respective threads on those topics, so please keep THIS thread in the spirit that the OP has posted it.

I see that spirit as "discussion of home energy efficiency upgrades that might qualify for credits (such as heat pumps, doors / windows / insulation etc)" and not who should or should not receive such credits, any political motivations, talking points, etc.

Thanks

 

[holeydonut]

(moderator note)

While I think this likely should live in the energy policy subforum, I am going to leave it here for now as threads in that subforum tend to get "re directed" as far as discussion about a specific topic goes, to discussion outside of the policies themselves.

Its also clear that the intention of this thread was not to discuss either the solar, or EV provisions of this policy (as stated by the OP).

This is a note that I will likely move any posts on the solar / batteries portion, or the EV portion (neither of which this thread is about) to other respective threads on those topics, so please keep THIS thread in the spirit that the OP has posted it.

I see that spirit as "discussion of home energy efficiency upgrades that might qualify for credits (such as heat pumps, doors / windows / insulation etc)" and not who should or should not receive such credits, any political motivations, talking points, etc.

Thanks

Thanks @jjrandorin , yeah the normal policy forum typically degrades into some global warming malarkey or people bickering if the earth is trapezoidal. I think since this particular subforum has demonstrated good historical convos around conversion electric and better efficiency hardware, there are people in this forum who are interested in planning future investment to better manage their energy, The inflation reduction act could help, but understanding it is going to be tough. I expect @Redhill_qik to also provide a TED talk to explain how this works heh.

The main challenge I see is quantifying the rebates themselves and figuring out who/what qualifies. For example, with the Energy Upgrade California initiative from a few years ago, every participating contractor had to go through training and learn how to properly file the paperwork to get the state rebates. Some contractors simply didn't participate because it was too difficult. There were all these extra data points the contractor had to produce to prove the upgrades improved the efficiency of the original baseline home. All this took administrative overhead and burden, and a lot of times the homeowner never saw the benefit to net pricing since the cash was all consumed by the red tape.

Even with a cursory investigation into windows and the EEHIC federal tax incentive, I can't get a big-time window contractor to validate energy efficiency of the latest windows being sold. For example, the energy star website lists certain brands, mounting types, and models with a "most efficient" u-factor of 0.20. But in the ordering system the installer has to get those windows has data from the manufacturer that shows a u-factor is 0.30 (for the same style and climate zone described on energystar.gov).

So the installer needs to be able to reconcile and make sure the right window is installed, or else the customer may not qualify for the confusing tax incentive.

 

[jjrandorin]

(moderator note)

Giving this an extra bump so it doesnt get buried so quickly.

 

[holeydonut]

(moderator note)

Giving this an extra bump so it doesnt get buried so quickly.

Yeah this thread will probably needs to die for a few months (years)... then I'll resurface it if anything useful comes from it. The three energy incentives are just... poorly thought out? By the time the HOMES and EFFICIENCY rebates are even a thing, Biden may get voted out of office and the whole thing goes away by executive order hah. By the own measures of the people who wrote those obscure home energy rebate portions of the Inflation Reduction Act, it seems like they think it'll be 12 to 24 months from now before you'll see any rebates being advertised to homeowners.

Why so much red tape? It's because the individual states have to have their energy departments apply to receive grants/subsidies under the federal program. THEN, the states have to execute the incentive program per the guidelines of the grant program.

If you thought the California SGIP was bad, it seems like HOMES and EFFICIENCY are even worse. Based on the current language in the IRA, the contractor administrating these IRA rebates actually has to prove that customer realized an energy improvement. This means the contractor collects funds on
the back end assuming certain metrics are met.

If you're a contractor, then you're at risk if the state energy department determines the data does not align with the requirements of the program. Or, if the homeowner decides to just do something weird and actually uses more electricity/energy after the upgrade, the contractor could see zero dollars come back. And it's unlikely the contractor will be able to collect from the homeowner for damages.

You can expect to see some states simply opt out of participating in HOMES or EFFICIENCY all together; and even then contractors may refuse to risk their own money for a homeowner to maybe earn them a rebate. SGIP is an incentive that rebates the customer; so if the project screws up, then the contractor isn't out anything.

HOMES and EFFICIENCY on paper look very much like the Energy Upgrade California program. But this one was administrated by the IOUs instead of the State energy departments. And that program had very nebulous benefit, which is why I don't think these federal programs will end up much different.

The EEHIC tax credit is an extension of the existing 26 U.S. Tax Code § 25C - Nonbusiness energy property. I expect this one to be easier to reconcile once the 25C language is updated and people feel like there's a way to actually follow some rules and check boxes to get their accountant to submit the $1,200 (or $2,000) in their 2023 taxes. But again, that's going to be at least a year and an half away. I don't see any homeowner starting out 2023 actually taking advantage of this credit.

And being a pessimist, I think the moment a window, insulation, or door vendor knows how to get this credit to work, they're just going to price up that particular qualifying item on their order sheet so the net benefit to the consumer isn't very high. Just like the EV tax credits; where manufacturers just price up when they know juicy credits are in play. I feel like the only way to really get the benefit is to find a contractor to do the work where the contractor has no expectation of this EEHIC coming into play. Then once the project is completed, the homeowner succeeds in getting the tax credit when filing their 2023 return in 2024.

 

[jjrandorin]

And being a pessimist, I think the moment a window, insulation, or door vendor knows how to get this credit to work, they're just going to price up that particular qualifying item on their order sheet so the net benefit to the consumer isn't very high. Just like the EV tax credits; where manufacturers just price up when they know juicy credits are in play.

This describes how I feel about all of these type programs from an operational point of view. These type of rebates never actually benefit the customer directly, even if they are point of sale / directly off the product. The company just "boils the frog" by increasing the price in increments until the company has captured any additional money for themselves.

Its one of the reasons I ignore all the local contractors trying to "help" me get rebates on energy efficient sprinklers, or re doing my lawn for "low cost". Its a "win-win" for the companies making those products though, because they get paid more either way. They raise the price, and either the homeowner pays and gets some sort of rebate, or doesnt get the rebate, but they get the same increased price.

 

[wwu123]

And being a pessimist, I think the moment a window, insulation, or door vendor knows how to get this credit to work, they're just going to price up that particular qualifying item on their order sheet so the net benefit to the consumer isn't very high. Just like the EV tax credits; where manufacturers just price up when they know juicy credits are in play. I feel like the only way to really get the benefit is to find a contractor to do the work where the contractor has no expectation of this EEHIC coming into play. Then once the project is completed, the homeowner succeeds in getting the tax credit when filing their 2023 return in 2024.

All somewhat true, my microeconomics professor was particularly adamant about exposing these flaws. Most egregiously in terms of consumer "rebates" that are offered by manufacturers as part of a class action settlement, I think GM and some other car company lawsuits particularly. He showed that not only were the car companies not really losing any money as part of these settlement rebates, they were actually making MORE money not just from regular profit margins from selling more new cars (in order for consumers to get their settlement rebates) but further from increasing the actual sales prices due to the increased buyer demand.

That said, it is dependent on the particular elasticities of supply and demand in a given industry, and competitiveness of vendors within that industry has an impact on that individually and as a whole. So it depends. I do feel the way they're structuring some of these programs to be pre-approved programs at time of sale (meaning the contractor will deduct the credit from the invoice at time of sale) makes it easier for contractors to abuse and capture more of it from the consumer.

I do recall when I replaced my gas furnace about a decade ago, taking advantage of a 30% tax credit for 95% efficient furnaces, I think I got close to the max around $1500 credit. That $1500 was basically the price upgrade from a standard 80% efficient furnace, which I was going to need regardless, so basically paid for the entire upgrade from basic equipment to top-of-the-line. It may have helped that holiday weekend emergency had me finding an independent HVAC contractor who does not advertise and was not a "licensed dealer" of any particular equipment brands, and to holeydonut's point didn't necessarily play games with such rebates/credits.

 

[Vines]

Wow, thanks for doing all this research, it has inspired me to do the same for my local CCA. In the process, I collected a $2k check for EV readiness when I bought my service upgrade earlier this year.

I have been doing some research into incentives and have discovered that many of the local CCA's have rebate and incentive programs now for things like Main panel upgrade, EV's, EV readiness, Heat Pumps, Heat Pump Water Heaters and Induction Stoves. Here is the PGE link to the CCA's and each location has its own programs at different times of the year.Community Choice Aggregation

 

[ptdusn]

Here's my question, we installed Solar in October 2021 and were activated Nov 2021. We took the full 22% tax credit on our taxes when we filed in February. Now, with the solar tax credit being bumped to 30% and installs in 2021 being qualified to get it. Will we be able to get the extra 8% or will it automatically be credited??????

 

[h2ofun]

Wow, thanks for doing all this research, it has inspired me to do the same for my local CCA. In the process, I collected a $2k check for EV readiness when I bought my service upgrade earlier this year.

I have been doing some research into incentives and have discovered that many of the local CCA's have rebate and incentive programs now for things like Main panel upgrade, EV's, EV readiness, Heat Pumps, Heat Pump Water Heaters and Induction Stoves. Here is the PGE link to the CCA's and each location has its own programs at different times of the year.Community Choice Aggregation

What was the process to get the EV readiness check?

 

[sunwarriors]

Here's my question, we installed Solar in October 2021 and were activated Nov 2021. We took the full 22% tax credit on our taxes when we filed in February. Now, with the solar tax credit being bumped to 30% and installs in 2021 being qualified to get it. Will we be able to get the extra 8% or will it automatically be credited??????

I'm not a tax expert so check with your own, but it was 26% in 2021 and no, you can't go back and claim 30% now if your service was turned on in 2021.

You're (me as well) out of luck for that extra 4%. Remember you still need tax liability to even get the credit, but I believe it can be rolled over to subsequent tax years.

 

[Vines]

What was the process to get the EV readiness check?

Fill out a 1 page form online, attach my invoice, 15-20 days later get a check.

Every CCA is different though, with different programs and the way they are administered. Some require you to go through a contractor, others allow you to just send in your permit and collect the check.

 

[h2ofun]

Fill out a 1 page form online, attach my invoice, 15-20 days later get a check.

Every CCA is different though, with different programs and the way they are administered. Some require you to go through a contractor, others allow you to just send in your permit and collect the check.

So this is with a CCA, not PGE or something else? I have PGE

 

[Vines]

So this is with a CCA, not PGE or something else? I have PGE

All CCA use PGE to deliver the power. They also use PGE for the billing portion.

I think 98% of PGE customers got a letter 3 -4 years ago asking if you wanted to opt-out, or if they wanted to go with their assigned CCA. If you chose to opt-out, you stayed with pge, otherwise you are signed up with a CCA. Your PGE bill should show this information since pge still handles billing.

 

[h2ofun]

All CCA use PGE to deliver the power. They also use PGE for the billing portion.

I think 98% of PGE customers got a letter 3 -4 years ago asking if you wanted to opt-out, or if they wanted to go with their assigned CCA. If you chose to opt-out, you stayed with pge, otherwise you are signed up with a CCA. Your PGE bill should show this information since pge still handles billing.

At least here at my house in Auburn, never saw or know anyone on a CCA. I do know some in the area, but not where I live. But, maybe I missed.
I thought I read about something from PGE about helping with EV install stuff, but the means test if I read correctly was pretty low

 

[holeydonut]

FWIW, here's the California Energy Commission docket log regarding how they're attempting to administrate these "energy" incentives at the state level. Dollars to donuts, Californians won't won't see a penny of savings from the IRA during Biden's first presidential term and the entire program is scuttled later heh.

California Energy Commission : Docket Log

About the California Energy Commission

efiling.energy.ca.gov

BTW, feel free to leave a public comment. Lots of people are already complaining that their 2023 projects should be retroactively eligible for funds lol. If you're doing a 2023 energy-saving project, you might as well just lob a public comment in there too.

Edit: here's the link to submit a comment:

California Energy Commission : e-comment : Submit Comment

About the California Energy Commission

efiling.energy.ca.gov

 

[holeydonut]

I still have no clue where to post random stuff like this, but since ya'll some super energy nerds and ya'll like saving money and some ya'll may be living in California ...

Some portions of the Inflation Reduction Act for energy saving upgrades is rolling out (has rolled out). The one that seems 'easiest' to get is a heat pump water heater. The incentives are for upgrading/converting from gas to electric. Won't work for new construction or people like h2ofun that paid for the upgrade already.

Fed incentive + stacking on the California rebates... you're looking at:

1) ~30% reimbursed through the IRA (no income limit that I can see)...
2) $300 potentially coming from PG&E ( Find the right electric water heaters for your home - PG&E Energy Action Guide )
3) $500 potentially coming from Golden Gate Rebates ( Instant savings for installers | Golden State Rebates )
4) $1,000 potentially coming from BAYREN ( Heat Pump Water Heaters | Bay Area Regional Energy Network )
5) The Building Decarbonization Coalition (BDC) is supposed to unveil their Residential Heat Pump Water Heater program this quarter. Not sure if it stacks with GGR and BAYREN. But, this could (remember I'm stupid so probably not) be like a free water heater that doesn't burn dead dinosaur farts when it's all said and done.

 

[holeydonut]

GAAHHHH BAYREN dropped their rebate from $1,000 to $400 on August 1.

Sad. Kitty.

 

[holeydonut]

Wow the IRA is definitely reducing costs for homeowner upgrades lololol. If anyone Californian actually buys a gas furnace or outdoor AC condenser in 2023; they are seriously messing up bad.

My neighbor just replaced his full 2 zone HVAC that used to be forced air furnace + outdoor condensing units & coils. The quote to do 2x NG furnaces + 2x condensing units + 2x coils + labor was $33k. 14 total registers and like 3,500 sq ft with full vaulted ceilings.

Thanks to TMC, I now know that a full HVAC overhaul should require heatpumps. So now my neighbor instead of replacing like-for-like now has a single Bryant multi-zone heat pump (38MGRB) and 2x Bryant ducted air handlers (40MBAB) to plug in and replace everything. $20k with an additional $3,200 ITC off on heat pumps plus various local incentives for ~$1,800 more off. Basically $15k all in to do a huge HVAC overhaul. And the new system uses way less energy and is way more comfortable. And the system works with Google/Alexa home automation.

Best of all, PG&E's dumb black boxes that they could use to shut off his old AC condensers have been removed.

Why anybody would do anything but heat pumps is beyond me. The fact you can just jam in this stuff into a legacy ducted system is even cooler (literally).

Since I am a DMAF I'm stuck with my stupid natural gas furnaces and air conditioning condensers. If only I found TMC sooner. More sad kitty.

 

[sunwarriors]

I found this website a while back from who knows where, I forget, but it lists the stuff that one may qualify for:

Household electrification incentives calculator from Rewiring America

Find out how much you could save with tax credits and rebates for heat pumps, water heaters, electric vehicles, electric stoves, rooftop solar, wiring upgrades, and energy efficiency improvements to your home.

www.rewiringamerica.org

Might be a good list to start prepping for things one wants to replace.


Edit: For people who can adjust their income due to bonuses, self employed, retirees, consultants, etc...maybe a good way to qualify for certain ones depending on income one year vs. next.