Through tax credits and refunds, President Biden's initiative Inflation Reduction Act (IRA) Provides new opportunities for homeowners and tenants to make energy efficient improvements, such as heat pump installations, to their homes. Heat pumps are a year-round heating and cooling solution for many homes and climates; They are energy efficient and save money.
Provisions available to homeowners who install heat pumps include the IRA Energy Efficient Home Improvement Credit, the Residential Clean Energy Credit, and the Home Electrification and Appliance Rebate Program. Each can help taxpayers defray the costs of making energy-efficient improvements to their homes, including the cost of a new heat pump. For low to moderate income households, Refunds and tax credits can be combined. to further reduce initial costs.
- He Energy Efficient Home Improvement Credit (Article 25C) provides a tax credit for energy efficiency improvements. This credit covers 30 percent of the cost of home improvements, such as qualified heat pumps, which are eligible for a credit of up to $2,000, as well as upgraded windows, doors, insulation, biomass stoves, water heaters and boilers, which are subject to certain annual limits. The credit also provides 30 percent of the costs up to $150 for home energy audits that identify potentially significant and cost-effective energy efficiency improvements for a home and that provide an estimate of the energy and cost savings for each improvement.
- He Residential Clean Energy Credit (Article 25D) covers up to 30 percent of the costs of qualified home improvements that include certain geothermal heat pumps, as well as solar water heaters, solar installations such as panels, small wind installations, fuel cells and battery storage.
- The Department of Energy Home Appliance and Electrification Rebate (HEAR) Program focuses on efficient electrification projects for low to moderate income (LMI) households. To qualify, projects must apply rebates as Point of sale incentive program instant discounts. Installer incentives of up to $500 are allowed.
Additional information about these credits can be found on the Treasury Department website. Taxpayer Resource Center.
Why heat pumps?
heat pump systems They work in all seasons, providing energy efficient solutions for heating and cooling homes. Unlike boilers, which generate their own heat, heat pumps use energy to move heat inside and outside a home as needed. The process makes heating and cooling homes cheaper and more energy efficient.
Although heat pumps have historically primarily served homeowners in warmer climates, recent Department of Energy initiatives are enabling the deployment of heat pumps in climates that experience freezing temperatures, making heat pumps a valuable tool for homeowners across the United States.
There is various types of heat pumpsDesigned to meet the diverse needs of homeowners across the country:
- air heat pumps transfer heat between a house and the surrounding air. They have two metal coils and contain a liquid refrigerant that evaporates and condenses to transfer heat. They can be through ducts or ductlessand can reduce electricity use by approximately 65 percent.
- Geothermal heat pumps transfer energy from water or land to and from a house. Although geothermal heat pumps can be more expensive to install, they have low operating costs and can significantly reduce energy use, sometimes by up to 80 percent.
- Absorption heat pumps They work similarly to air heat pumps, but instead of electricity, they use heat or thermal energy as the primary energy source.
Each type of heat pump has the potential to save consumers money while reducing their carbon footprint.
Case studies
The following hypothetical scenarios illustrate the value that heat pumps can provide to individuals, especially when used in conjunction with IRA credits or refunds. Please note that savings amounts over time are not discounted.
Case study A
The Pompapanas family has an above-average monthly electric heating and cooling bill of $200[1] and are interested in purchasing an air source heat pump for $12,000.[2] They take advantage of the Energy Efficiency Home Improvement Credit and save $2,000 on their year-end tax return, so the net cost is effectively $10,000. Adding a heat pump reduces the Pompapanas family's average monthly electric bill by 65 percent[3] from $200 to $70, saving $130 a month, or $1,560 a year. After 7 years, they will have saved more on energy bills than the initial cost they paid for the pump. In 15 years, the family could save up to $13,400 in net savings.
Case study B
The Antlia family lives in a large house with an average monthly heating and cooling bill of $400. They are looking to install a $20,000 geothermal heat pump in their home and finance the cost over time. Their bank offers them a home improvement loan of $15,000 at 10 percent interest to be paid over 15 years with a down payment of $5,000. They take advantage of the Residential Clean Energy Credit, saving 30 percent of the cost of the geothermal heat pump, or $6,000 on their year-end tax return.
After installing the heat pump, the family's average monthly utility bill is reduced by 75 percent.[4] from $400 to $100 a month, saving them $300 a month and a total of $3,600 a year.
Over the life of the loan, they will make monthly payments of $161, meaning they will have net monthly savings of $139 per month, or $1,668 per year. By the time the loan is paid off in 15 years, the family will have saved approximately $20,000 on their geothermal heat pump after accounting for loan costs.
Case study C
Heat pump installations can also benefit low-to-moderate income (LMI) households. The Varmepump family, a moderate-income family, purchases an air heat pump for $16,000 for their new home. They get a rebate for home electrification and appliances, saving them $8,000 in heat pump expenses. If the Varmepump family has enough tax liability for that year, they can also take advantage of the Energy Efficient Home Improvement Credit, saving $2,000 on their year-end tax return, so the net cost is effectively $6,000. Adding a heat pump reduces the Varmepump family's average monthly electricity use for heating and cooling from $150 to $60, saving $90 per month, or $1,080 per year. After 6 years, they will have saved more on energy bills than the initial cost they paid for the pump. After 12 years, the family will save $6,960 in energy costs.
Conclusion
The Inflation Reduction Act, through the Energy-Efficient Home Improvement Credit, the Residential Clean Energy Credit, and the Home Appliance and Electrification Rebate (HEAR) Program, is allowing households, including those in low to moderate income (LMI), feed their homes more efficiently and save money. Consumers who purchase heat pumps directly, with the help of a consumer loan and/or with the help of a rebate, have the potential to generate enormous climate and economic impacts. Heat pump buyers can save money on upfront installation costs and energy bills down the road.
