Inflation Reduction Act rebates and tax Credits: What do they mean for homeowners?

Get all you need to know about the new energy rebates and clean energy tax credits is in this guide.

Get all you need to know about the new energy rebates and clean energy tax credits is in this guide.

By now, you’ve probably heard the buzz: On August 16, President Biden signed the Inflation Reduction Act of 2022 into law. 

This groundbreaking legislation provides billions of dollars—over $10 billion in fact—in federal rebates, market incentives, and tax credits to help households slash energy waste, use renewable energy, and install important home upgrades like heat pumps.

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But what does that mean for you?

In this homeowner guide, you’ll get plain-language answers to important questions around the Inflation Reduction Act (also referred to in the news as the climate bill, inflation relief bill, or climate legislation). 

We’ll also talk through what the new law means for essential energy efficient home improvements—including an overview of what home energy rebates, incentives, and tax credits will be available to help make those improvements. 

This guide will cover the following:

And before we jump in, here’s some more amazing news: The same key energy efficiency home upgrades included in the Inflation Reduction Act can make your home more comfortable, increase your indoor air quality, and stop a drafty house in its tracks. 

A healthier, more comfortable, more efficient home is now more accessible to more Americans through this new law? Yes, please! But that doesn’t mean waiting is necessarily the best option for you and your home. Let’s dig in.

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Check out our FREE home energy-efficiency guide to learn how 3 core efficiency upgrades can make your home more comfortable year-round.

Top things you need to know about the Inflation Reduction Act rebates and tax credits as a homeowner 

Here are the key parts of the new law that apply to home energy upgrades and home electrification. 

  1. Homeowners can receive a few-hundred-dollar tax credit for heat pumps and weatherization projects that are installed in the 2022 tax year. 
  2. Starting January 1, 2023, those tax credits increase to $1,200 for weatherization (things like air sealing and insulation) and $2,000 for heat pumps and heat pump water heaters. Final details and requirements for these incentives will be released later by the IRS.
  3. Any additional cash rebates, if you are eligible, won’t be around for another 12–24 months. But why does it take so long for the new program rollout? Well, first, funds are allocated from the federal government to the state government. Then the state government has to create new programs to oversee the funds. This process just takes time. 

    (Existing rebates from your local state or utility program are still available for now. If you live in New York, see our energy rebate calculator here.)
  4. Eligibility rules and cash rebate values for these programs will be defined by your state as part of their work to create the program. Right now, we can’t say with certainty how rebates from this bill will compare to those currently offered by your utility (or if you will even qualify).

    For a quick estimate of what could be available, check out this nifty calculator from our friends at Rewiring America
  5. At least 40% of the Inflation Reduction Act’s program budgets will likely be reserved for low-to moderate income households to make home energy efficiency and electrification more accessible to this group. The cash rebates and market incentives for low-to-moderate income households will be higher than the tax credits available.

That’s just a high-level look at how this new law affects incentives for energy-efficient home upgrades. We’ll dive in deeper below, but if you’re a detail-oriented researcher, you can find the Inflation Reduction Act of 2022 in full PDF here or you can check out the fact sheets released by the White House for each state.

What does the Inflation Reduction Act mean for energy efficiency and home electrification?

The Inflation Reduction Act is the most robust climate action ever taken by the United States federal government. (Hurrah!) 

Residential housing accounts for approximately 20% of all U.S. greenhouse gas emissions—and the new law provides much-needed financial support through cash rebates, market incentives, and a 10-year extension of an improved residential energy efficiency tax credit. 

And expert analyses are showing that the new legislation has the potential to reduce national greenhouse gas emissions by up to 40% (1, 2). 

The financial incentives included in the Inflation Reduction Act will help American households—regardless of income—stop energy waste, electrify their homes, and create a cleaner planet. That’s a win for us all!

What energy rebates and clean energy tax credits will be available to improve my home? 

Mature woman works on her computer taking notes about Inflation Reduct Act energy rebates

It’s best to think of the Inflation Reduction Act’s climate and energy home upgrade incentives in three parts:

  1. The 25C Energy Efficiency Home Improvement tax credit
  2. The High Efficiency-Electric Home Rebate (HEEHR) Program
  3. The HOMES Rebate Program

It’s important to know upfront that the HEEHR program and HOMES rebates are unable to be combined with one another. However, the 25C tax credit may be combined with either the HEEHR or HOMES program.

Get $0 upfront home energy upgrades if your house qualifies. Learn how.

Later this year, once things get rolling, the public should have a better sense of how the programs should work. The rules for each program will be set by the Internal Revenue Service (IRS) and the Department of Energy (DOE).

Let’s dig into each financial incentive.

The 25C Energy Efficiency Home Improvement tax credit

This home improvement tax credit has been around for a while, but the Inflation Reduction Act increases the value of the tax credit by 20% and makes it possible for you to receive a benefit each year.

(Originally, this tax credit was limited to 10% of your project costs but has increased to up to 30% under the new legislation. Hooray!)

The value of the tax credit is annually capped at the following: 

  • $2,000 for electric and gas heat pumps and heat pump water heaters, biomass stoves, and boilers 
  • $1,200 for weatherization installs (like air sealing and insulation work) and electrical panel upgrades that allow for the use of a qualified energy-efficiency upgrade 

A few essential notes about the tax credit you should know:

  • Your tax credit will cap at $2,000 annually.
  • The tax credit is only available to offset your tax liability. That means you’ll only be able to claim it if you owe some money back in taxes. (Make sure to talk with a tax professional to determine your individual eligibility.)

Another thing: Before you choose your upgrades, there are some important things to consider. 

Depending on the type of heating system you choose, heating oil and natural gas can be more expensive than using electricity to heat your home.

Electric heat pump HVAC systems are 3 times more efficient than traditional heating systems, like boilers or furnaces.

Learn more about heat pumps, see guidelines for the new heat pump tax credits and rebates, and discover how to convert from oil to electric heat here. 

You could cut up to 50% of your energy use when getting high-performance insulation, professional air sealing, and heat pump HVAC upgrades with Sealed. Learn how.

What’s the timeline on the 25C energy-efficiency home improvement tax credit being available?

The increased tax incentives will go into effect in 2023. That means that if you install a home energy efficiency project in 2023, you may be eligible to claim the credit when you file your taxes in 2024.

If you’ve already installed a home upgrade in 2022 there are still tax incentives available, up to $500. ENERGY STAR has some great resources on the existing 2022 tax credits, but we also recommend you work with a tax professional to review your eligibility and application. 

If you worked with Sealed to install your upgrades, we’re here to provide any documentation you may need!

The High-Efficiency Electric Home Rebate (HEEHR) program

The Inflation Reduction Act also creates a new $4.275 billion program called the High-Efficiency Electric Home Rebate (HEEHR) program

As we mentioned earlier, these funds have to be allocated from the Department of Energy to what’s called your State Energy Office

The State Energy Office will be responsible for setting up your state’s HEEHR program which focuses on providing rebates to households with a total annual income that’s less than 150% of the local median income. (The local median income for your area will be defined and determined by your state.) 

The program’s maximum rebate values include: 

The total combined rebate cannot exceed $14,000 per household. 

It’s important to remember that the eligibility for these rebates is income-based and the rebate values aren’t guaranteed for every household. 

What’s the timeline on the HEEHR rebate program being available?

It’s expected to take between 12 and 24 months for this funding to be available through your state.

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The HOMES rebate program

The Inflation Reduction Act also creates a brand-new $4.3 billion program called the Home Energy Performance-Based, Whole-House rebate program, referred to as the HOMES rebate program for short. 

Like the HEEHR program, the HOMES rebate program will be overseen by your state’s State Energy Office. 

But unlike the HEEHR program, the incentives available through the HOMES program aren’t restricted by income and are based on the actual performance of your whole-home energy efficiency and electrification improvements. 

These performance-based market incentives will be paid to contractors, installers, or home performance companies like Sealed based on your home’s actual energy savings post installation. 

These types of incentives encourage businesses doing home energy improvements to complete high-quality installations, maximize energy savings, and ensure the project performs as promised. 

For you this means better projects, more comfortable, healthier homes, and guaranteed performance. 

Now, guaranteeing performance isn’t new for Sealed: Remember, we only get paid if our energy efficiency upgrades work. But it’s not how traditional energy-efficiency cash rebate programs have operated in the past. 

In traditional cash rebate programs, you receive a cash rebate when your upgrade is  installed—but there isn’t any guaranteed performance. This puts the risk and responsibility of finding a high-quality contractor, managing your home’s energy upgrades, and monitoring your home’s performance on you

The HOMES rebate program and performance market incentive shifts all these risks and responsibilities to the contractor, installer, or home performance company. All you’ll need to worry about is agreeing to a project price that fits your budget.

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What’s the timeline on the HOMES program being available?

It’s expected to take between 12 to 24 months for this funding to be available through your state. And it’s crucial to know you cannot participate in both the HEEHR and HOMES programs.

Now that you know about the new programs and changes to energy upgrade incentives, don’t split just yet… should you wait a year (or more!) to install home energy upgrades? 

Or should you move forward with projects right now

Well, that’s what we’re talking about next.

white new construction home with heat pump outdoor condenser

Should you wait to get home upgrades until the new Inflation Reduction Act rebates take effect?

This is a good question—and for most people it’s not a good idea to put off your home’s energy upgrades. And here are 5 reasons why.

  1. The current state and utility rebates that are available to you may not be around much longer. And depending on your income qualifications, the federal rebates may not be as much of an incentive. In addition, we don’t know how the federal rebates will align with the local state and utility programs that are currently available, and it’s possible the introduction of federal rebates may result in lower local rebate programs for energy upgrades.
  2. Inflation on energy-efficient home appliances and equipment is likely to continue. That means the rebates for qualifying upgrades like heat pump HVAC, heat pump water heaters, insulation, and air sealing could be offset with higher equipment prices, which could mean less savings than initially expected.
  3. Energy prices are rising. Natural gas is the most expensive it’s been since 2008, which directly affects your electricity bill, too. It’s predicted to stabilize soon, but the rising cost of energy affects us all. And the best way to mitigate it is to reduce your home’s energy use today. Learn why natural gas is so expensive right now in our guide.
  4. Contractors and technicians will be inundated with demand in the near future. Make sure your project gets installed in a timely manner by moving forward—that way, you can start cutting energy waste ASAP without having to wait months in a project queue.
  5. You deserve to live in a healthy, comfortable home. Waiting another 1 to 2 years to get the work done means another sauna-like summer and drafty winter—as well as continued winter ice dams that can damage your home (this is not often covered by homeowners insurance). A too-hot or too-cold house can have indoor air quality issues and affect your health, too, but at the end of the day, it’s just plain annoying to have uneven, uncomfortable temperatures.   

Overall, demand will increase and inflation is likely to continue.

Making moves now to make your home feel better and protect your house against the rising cost of energy is still a good idea

Sealed’s advisor was awesome! She designed the project based on my needs, sent all the paperwork to the contractor, and answered any questions I had. Our communication was excellent. Overall, I am pleased with the results and service from the entire Sealed team.

Devendra S., Sealed customer

Get home energy upgrades at no upfront cost—plus eligible rebates—with Sealed

Energy rebates, tax credits, financial incentives, oh my! It’s a lot of info to digest and untangle.

When you’re ready to make energy-efficient home upgrades, there’s a lot to consider (and project manage). 

But with Sealed, the process is hassle-free

If your house is eligible, you can get an energy-efficient heat pump HVAC, high-performance insulation, and professional air sealing and weatherization at no upfront cost. 

And Sealed stays accountable to the results. If you don’t save energy, we don’t get paid. (No, it’s not too good to be true. Learn about the payment plan here.)

If I don’t have to spend any extra money to get a huge improvement to my home, it’s just a no brainer at that point.

Scott. R, Sealed customer

Think of Sealed as your home’s energy-efficiency project guru and concierge. Sealed will:

  • Plan your customized energy efficiency upgrades and comfort solutions
  • Help you understand your rebate eligibility and possible tax credits—and their impact on project costs (this is, after all, a ton of work and can be a logistical nightmare)
  • Apply for local permits needed to do the job
  • Negotiate, hire, and manage expertly vetted local contractors for your job (we only work with the best of the best!)
  • Partner with your utility to stay accountable to cutting energy waste

…all while paying the upfront costs on your behalf. You pay us back over time based on a rate of your energy savings each month. 

And we do all the heavy-lifting for you… and then make sure the work done to your house, well, works. (It’s a plan our customers love.)

Complete our easy 2-minute questionnaire to find if your house qualifies to get energy-efficiency upgrades with Sealed. 

Wait—what do the new rebates mean for current Sealed customers? 

If you’re currently a Sealed customer, you may still have access to some of these incentives. 

illustration of heat pump installer

Remember the 25C Energy Efficiency Home Improvement tax credit we talked about earlier?

Well, the existing version of that tax credit has been retroactively extended until the end of 2022, which means you may be eligible for a few hundred dollars in tax credits if your equipment and install qualifies! 

  • Climate and Comfort + Climate customers who completed a heat pump install in 2022 may be eligible for a $300 tax credit. 
  • Comfort and and Comfort + Climate customers who completed an install in 2022 may be eligible for a $500 weatherization tax credit. 

In both cases, your upgrades will need to meet the tax credit eligibility requirements, which you can learn more about on ENERGY STAR’s website

Remember, you’ll also need to confirm that you are eligible for the 2022 25C tax credit with a tax professional or accountant. 

Not a Sealed customer yet, but ready to install? Check out how you could get energy efficient home upgrades with Sealed at no upfront cost if your house qualifies.

August 30, 2022