Solar and Home Energy Upgrades: How to Save Money with the Inflation Reduction Act

Rebecca Graham

Last Updated: January 25th, 2023

President Biden signed into law the Inflation Reduction Act on August 16, 2022. This legislation is intended, in part, to invest in clean energy production here in the United States and jumpstart or continue consumer initiatives to reduce carbon emissions. 

And how does this impact you?   

When you invest in select energy upgrades, there’s money for the taking. 

The Inflation Reduction Act provides financial incentives for green home and vehicle upgrades for individuals, corporations, and state and local governments. $43 billion has been allotted to tax credits making solar, batteries, energy-efficient appliances, geothermal heating, and electric vehicles more affordable.

While we won’t comprehensively discuss all 272 pages of the legislation (which also lowers healthcare costs, funds the IRS, and improves taxpayer compliance), we will highlight opportunities for consumers to directly benefit through the purchase of solar and additional home energy-related upgrades.

In this article, the acronym IRA will refer to the Inflation Reduction Act.

Solar

Purchase: New solar installation 
Incentive: 30 percent tax credit 
Timeline: January 1, 2022–December 31, 2032 

The Residential Clean Energy Credit within the IRA extends the timeline of the Solar Investment Tax Credit (ITC) and increases the credit amount as well. 

The ITC was set to decrease from 26 percent to 2022 percent in 2023, but it has now been raised to 30 percent through the end of 2032. This amount increase also applies retroactively from the beginning of 2022: “In the case of property placed in service after December 31, 2021, and before January 1, 2033, 30 percent.”

The tax credit is applicable only towards taxes owed for a calendar year, so it cannot be applied at the point of sale or redeemed as a check. However, the credit will roll over into the following tax year as long as the credit is active, so you don’t have to use all of it in one year. 

The credit percentage applies to the total cost of your system, including equipment, permitting, and installation costs. It also applies to energy storage systems (solar batteries) and DIY solar systems, such as SunPower’s IKEA solar product suite for California residents. 

Additional home energy upgrades  

Energy Efficient Home Improvement Credit 

Purchase: Electrical upgrades of various types 
Incentive: 30 percent tax credit 
Timeline: TBD; Early 2023–September 30, 2031

The IRA also expands a homeowner efficiency tax credit, called the Energy Efficient Home Improvement Credit, which covers up to 30 percent of the cost of energy upgrades. The credit was previously available as a lifetime credit, meaning you could only claim it once. Now, this credit is an annual incentive that can be claimed multiple times (for example, installing new doors one tax year and upgrading your breaker box the following year). 

The upgrades eligible for this credit include the installation of the following: 

  • Heat pump HVACs
  • Heat pump water heaters
  • Doors
  • Windows
  • Insulation
  • Breaker boxes

There is a tax credit cap of $1,200 per household per year with the exception of heat pump water heaters, which are eligible for up to $2,000. 

HEEHRA 

Purchase: Electrical upgrades of various types 
Incentive: Up to $14,000 in rebates
Timeline: TBD; Early 2023–September 30, 2031

Select home upgrades in addition to solar are also eligible for a tax incentive through the IRA. The biggest difference is that this incentive is a point-of-sale rebate rather than a tax credit, so it reduces the overall upfront cost of upgraded electrification.  

The High-Efficiency Electric Home Rebate Program (HEEHRA) provides rebates for the several home improvements, listed below, along with their corresponding maximum amounts. Be aware that the maximum amount listed applies to households making less than 150 percent of their Area Medium Income (AMI). 

  • Heat pump for space heating and cooling: $8,000
  • Heat pump water heater: $1,750 
  • Heat pump clothes dryer: $840
  • Electric stove, cooktop, range, or oven: $840
  • Upgraded breaker box: $4,000
  • Upgraded electrical wiring: $2,500
  • Insulation, ventilation, and sealing: $1,600

Rebates can cover 100 percent of the costs for low-income households (below 80 percent AMI) and up to 50 percent of costs for moderate-income households (80 to 150 percent AMI).  

HOMES rebate program 

Purchase: Electrical upgrades of various types 
Incentive: Up to $8,000 in rebates 
Timeline: TBD; Early 2023–September 30, 2031

This program cannot be combined with HEEHRA incentives but is an option for households that do not qualify for HEEHRA or low-middle-income households that want to pursue this incentive instead. 

HOMES provides funding for state energy offices to reimburse homeowners for whole-house energy improvements that result in lower energy usage. Execution of this program will vary by state and details are still in the works, but we’ll share what we know. 

The rebate amount per household depends on the upgrades, subsequent energy usage, and income level. For example, a homeowner of any income level that cuts their energy usage by at least 35 percent can get up to $4,000 in rebates. Low-income and middle-income households can get up to $8,000 in rebates. 

Planning your purchases 

In regards to the HOMES rebate program and HEEHRA, hold off on making qualifying purchases until the official start date of the rebate, which is to be determined. It's unclear if retroactive rebates will be available for purchases made now. 

The solar credit is applied based on the tax year the project is installed and operational, so any projects completed before 2033 should be eligible for the respective incentive. 

On one hand, the extensive timeline for these incentives can give you some breathing room to plan out purchases thoughtfully and to take the time to save up for them if needed. 

On the other hand, inflation and supply chain disruptions have caused price increases for home improvement projects of all sorts, so it's impossible to predict how the costs of solar and other home energy upgrades will evolve over time. 

We recommend considering solar sooner rather than later. The sooner you invest in solar, the sooner you can start getting a return on your investment

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As you prepare to make moves toward improved home energy efficiency, learn more about solar by looking at the top-rated companies, reading reviews, and comparing quotes. 

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