The Inflation Reduction Act (IRA), passed in 2022, has made a significant impact across various sectors of the U.S. economy, and one area that stands to benefit
tremendously is the HVAC industry.
For homeowners, the IRA represents an opportunity to upgrade HVAC systems, save on energy bills, and take advantage of tax credits and rebates that help offset costs. As a team of HVAC specialists with over 16 years of experience serving the Gorge area, our experts here at A&E Plumbing, Heating and Air have seen firsthand how this legislation empowers homeowners to make smarter, more sustainable choices when it comes to heating and cooling their homes.
Here’s a closer look at how the IRA affects the HVAC industry and what it means for homeowners looking to improve their home’s energy efficiency.
What is the IRA, and Why Was it Passed?
The Inflation Reduction Act (IRA) was passed in August 2022 with the primary goal of addressing several key issues in the United States, including climate change, rising healthcare costs, and inflation. It represents one of the most significant climate-related legislative efforts in U.S. history, and its overarching purpose is to encourage a shift toward cleaner, more sustainable energy while reducing household energy costs.
Here are the main reasons why the IRA was passed:
1. Combat Climate Change
The U.S. government aimed to drastically cut greenhouse gas emissions by incentivizing the adoption of cleaner energy technologies, both at the individual and corporate levels. The IRA sets the U.S. on track to reduce emissions by roughly 40% by 2030 compared to 2005 levels. The bill supports investments in renewable energy, electric vehicles, energy-efficient appliances, and HVAC systems, all aimed at reducing the nation's reliance on fossil fuels.
2. Reduce Energy Costs for Consumer
One of the key motivators behind the IRA was the goal of helping consumers save on energy bills by providing incentives for homeowners to upgrade to energy-efficient systems. By making it more affordable to switch to energy-efficient HVAC systems, solar panels, electric heat pumps, and more, the IRA helps lower household energy usage and costs, while also reducing the nation’s overall energy demand.
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The IRA is designed to stimulate growth in the clean energy sector, creating new jobs and making the U.S. more competitive in the global energy market. The bill includes tax incentives for manufacturing renewable energy equipment like solar panels and wind turbines, as well as for energy-efficient appliances. This focus on clean energy manufacturing is intended to build a strong domestic supply chain and promote long-term economic growth.
4. Address Inflation
Another reason for the passing of the IRA was to curb inflation. By investing in energy efficiency and lowering costs for consumers in the long term, the act aims to help ease the burden of rising prices. Lowering healthcare costs and reducing the federal deficit were also central goals of the act, contributing to a more balanced economic outlook.
5. Lower Healthcare Costs
In addition to its energy-related components, the IRA also includes provisions to lower healthcare costs, such as capping out-of-pocket expenses for Medicare recipients and allowing Medicare to negotiate the prices of certain prescription drugs. This helps reduce financial strain on individuals and improves access to necessary healthcare services.
What HVAC Benefits Are Available Through the Inflation Reduction Act?
The IRA provides tax credits and rebates for energy-efficient home upgrades, including HVAC systems. This means that if you upgrade to a more efficient air conditioner, heat pump, or furnace, you could be eligible for significant savings.
Here are some key provisions for HVAC systems:
Energy Efficient Home Improvement Tax Credit (25C)
Under the Energy Efficient Home Improvement Credit (formerly known as the Nonbusiness Energy Property Credit), homeowners can receive a tax credit of up to 30% of the cost of qualified energy-efficient HVAC systems. This includes air conditioners, heat pumps, furnaces, boilers, and other heating and cooling equipment. The credit is capped at $600 per system, but if you’re installing a qualified heat pump, you can receive up to $2,000.
High-Efficiency Electric Home Rebate Act (HEEHRA)
The IRA places particular emphasis on heat pumps, which are among the most efficient heating and cooling systems available today. Heat pumps transfer heat rather than generate it, making them far more energy-efficient than traditional HVAC systems like furnaces or central air conditioners. As part of the IRA’s goal to reduce carbon emissions, homeowners are encouraged to switch to heat pumps, with enhanced rebates and tax credits available.
The High-Efficiency Electric Home Rebate Act (HEEHRA), included in the IRA, offers low- and moderate-income households up to $8,000 in rebates to cover the cost of purchasing and installing a heat pump. This rebate can drastically reduce the upfront cost of switching to a more energy-efficient system, making heat pumps more accessible for a larger portion of the population.
Households with income less than 150% of the area median income (AMI) may qualify for the full HEEHRA rebates.
For the tax credits, there are no specific income limits, but your system must meet certain efficiency standards: SEER (Seasonal Energy Efficiency Ratio) and HSPF (Heating Seasonal Performance Factor) ratings are both considered, generally requiring at least 15 SEER2 and 8.2 HSPF2.
Residential Clean Energy Credit
For homeowners interested in transitioning to renewable energy, the Residential Clean Energy Credit allows for a 30% deduction on the cost of solar, geothermal, and other clean energy systems, including certain HVAC heat pumps.
How Homeowners Can Maximize HVAC Savings
One of the best ways for homeowners to take full advantage of the Inflation
Reduction Act is by combining various tax credits and rebates available for HVAC upgrades. For example, a homeowner might install a new heat pump, which qualifies for both the $2,000 tax credit under the Energy Efficient Home Improvement Credit and an $8,000 rebate through HEEHRA, dramatically reducing the cost of the system.
In addition, homeowners may also qualify for rebates through local energy efficiency programs or utilities that incentivize energy-saving upgrades. These combined savings can lead to a much quicker return on investment, making it easier for homeowners to prioritize energy efficiency upgrades.
What Homeowners Should Do Next to Start Saving
If you’re a homeowner considering an HVAC upgrade, now is the perfect time to act. The Inflation Reduction Act offers unprecedented financial incentives for those looking to improve their home’s energy efficiency. Here are 4 steps you should take:
1. Assess Your Current HVAC System
If your current heating or cooling system is more than 10-15 years old, it’s likely far less efficient than newer models. Start by getting an energy audit to identify how much energy you’re wasting and what upgrades would provide the best return on investment.
2. Explore Heat Pump Options
Heat pumps are heavily incentivized under the IRA, making them a top choice for homeowners. Talk to your HVAC professional about the best heat pump options for your home, and determine whether you qualify for the tax credits and rebates available.
3. Consult with a Qualified HVAC Professional
Upgrading your HVAC system is a significant investment, and you’ll want to make sure you’re making the right choice. A qualified HVAC technician can guide you through the options and help ensure you’re taking full advantage of the financial incentives available under the IRA.
4. Apply for Tax Credits and Rebates
After you’ve selected your new system and scheduled the installation, make sure to apply for the appropriate tax credits and rebates. Keep all documentation for your records, and consult with your tax professional to ensure you’re getting the maximum benefit.
Frequently Asked Questions
Q: Can I stack federal tax credits with state or utility rebates?
A: Yes! In many cases, you can combine federal tax credits with state or local rebates to maximize your savings. Be sure to ask your HVAC contractor about all available incentives when considering an upgrade.
Q: Are there deadlines for applying for these HVAC incentives?
A: The IRA tax credits are available through 2032, giving you plenty of time to take advantage of them. However, individual state rebate programs may have varying timelines, so it’s important to check your state’s specific requirements.
Q: What should I do if my HVAC system isn’t currently energy-efficient?
A: If you’re considering a replacement, this is the perfect time to upgrade to a system that meets the IRA’s efficiency standards. Consult with an HVAC expert to explore your options and find a system that qualifies for incentives.
How the IRA Can Help Save You Money
The Inflation Reduction Act offers a fantastic opportunity for homeowners to
upgrade their HVAC systems while saving on upfront costs and long-term energy bills. Whether you’re looking to install a new heat pump, central air system, or energy-efficient furnace, the IRA provides substantial tax credits and rebates to help make the transition more affordable.
Take the next step by exploring which HVAC systems qualify for IRA tax incentives and how you can get the most out of these credits. Explore the top options in our guide, “3 Top Qualifying HVAC Systems Under the Inflation Reduction Act (IRA).”
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