INFLATION REDUCTION ACT HVAC SAVINGS
The effects of climate change are undeniable as the 2020s have gotten underway.
Our planet has experienced warmer temperatures (with 2023 hitting new temperature highs across multiple days), greater health risks from disease spread, crop reduction (which could cause food shortages), species loss as animal home environments change drastically, higher rates of drought, and increased storm severity.The Inflation Reduction Act was introduced in 2022 and is ongoing in 2023 to fight against climate change by embracing cleaner energy and lower costs.
Besides its goal of making energy cleaner, the Inflation Reduction Act seeks to lower the federal government budget deficit and reduce costs in some areas, including prescription drugs and HVAC.
If you own a heat pump or HVAC equipment or are soon planning to purchase it, you won’t want to miss this guide. We’ll explain the connection between HVAC systems and the Inflation Reduction Act, including where you can save and how much.
What Is the Inflation Reduction Act?
The Inflation Reduction Act, abbreviated as IRA, was signed into law by President Joe Biden on August 16th, 2022. This United States federal law, which has continued into 2023, invests in the nation’s future by taking climate action.
Following the agendas of Investing in America and Bidenomics, the Inflation Reduction Act is multifaceted. The law seeks to reduce energy costs, invest or reinvest in forest restoration, improve agriculture, and explore other avenues to slow climate change.
Under the law, more jobs in energy efficiency and clean energy have been introduced, and energy-efficient solutions have lowered in cost.
At least 100 agencies and bureaus have partaken in the Inflation Reduction Act. Some that are relevant to HVAC owners include:
The Inflation Reduction Act HVAC Savings Under the Energy Efficient Home Improvement Credit
With so many pillars of the Inflation Reduction Act, some of the $369 billion funneled into it through the various initiatives above, and many others go toward HVAC, namely heat pumps.
The Energy Efficient Home Improvement Credit, also known as Tax Credit 25C, can be a big difference-maker if you invest in energy-efficient heating or cooling through the Inflation Reduction Act.
What Is the Energy Efficient Home Improvement Credit?
The Energy Efficient Home Improvement Credit applies to eco-friendly home changes implemented after January 1st, 2023.
Homeowners can receive a credit valued at up to 30 percent on qualified expenses, including home energy audits, residential energy property expenses, and energy efficiency improvements.
Who Is Eligible for the Energy Efficient Home Improvement Credit?
If your new heat pump or energy-efficient HVAC system went into service on or after January 1st, 2023, you might be eligible for the Energy Efficient Home Improvement Credit. You must live in the United States and have made changes to your primary residence.
Property owners or landlords who manage but don’t live in the property cannot apply for this tax credit. The credit is also only applicable to existing properties with a new HVAC system, not new homes.
Your home must be used for living to claim the full credit, but you can use it for business 20 percent of the time. However, properties that use a home for business more than 20 percent of the time will receive a credit determined by their shared expenses for nonbusiness purposes.
What Can You Claim Under the Energy Efficient Home Improvement Credit?
The Energy Efficient Home Improvement Credit allows you to claim a tax credit between 2023 and 2032 for eligible home improvements.
You can claim $2,000 a year for qualified biomass boilers, biomass stoves, or heat pumps. You can also claim this credit for energy property costs at $1,200 overall. That’s $150 for home energy audits, $600 for windows, and $250 for each door for up to $500.
The credit applies until 2032 and has no upper lifetime dollar limit, so you can get the full amount every year if you continue to improve your home’s HVAC system.
Qualified Credit Amounts and Expenses Under the Energy Efficient Home Improvement Credit
Here is an overview of the qualified expenses and the amount you can anticipate earning in credits.
Biomass Boilers, Biomass Stoves, and Heat Pumps
Biomass boilers, natural gas or electric heat pump water heaters, biomass stoves, and natural gas or electric heat pumps qualify if their thermal efficiency rating is 75 percent or higher. You can earn a credit of $2,000 each year.
Home Energy Audits
Although this applies less to an HVAC system addition, an energy audit can result in a credit of $150 max.
The audit must occur for your primary home. You must seek the services of a home energy auditor, who will prepare and do the audit. They must inspect the property and produce a written report that reveals the eco-friendly changes you can make to the property, with estimated cost and energy savings for each improvement.
You may wish to take advantage of this credit under the Energy Efficient Home Improvement Credit in 2023, as its criteria will evolve in 2024.
In 2024, a home energy auditor must be qualified and share their employer identification number or EIN. They must also have an attestation that they’re certified under a qualified program.
Residential Energy Property
The Consortium for Energy Efficiency, or CEE, has set energy tiers. Any residential energy property that meets the requirements for the highest CEE efficiency tier (but not an advanced tier) can receive a $600 credit for each item.
This credit goes into effect at the start of the year in which installation occurs. Any qualifying property must be new, such as hot water boilers, central air conditioners, furnaces (that run on oil propane, or natural gas), and water heaters (that run on oil, propane, or natural gas).
Building Envelope
You upgraded your HVAC system, so why stop there? Improving your air sealing systems, insulation, exterior skylights or windows, and exterior doors can net you varying amounts of money.
The air sealing and insulation have an upper credit limit of $1,200, but your materials must pass the International Energy Conservation Code or IECC standards two years before they were installed. In other words, insulation installed in 2023 must meet 2021 standards.
The exterior skylights and windows can generate a $600 credit if they’re Energy Star-certified, while the exterior doors have a credit limit of $500 and must also be certified.
How to Claim the Energy Efficient Home Improvement Credit
Earn your credits by completing IRS Form 5695, Residential Energy Credits Part II. Submit the form when you file your taxes in April.
What If You Upgraded Your Heat Pump in 2022?
You can still claim credits per the Energy Efficient Home Improvement Credit if your HVAC system is older than 2023. You shouldn’t fill out Form 5695 for 2023 but an older version of the form. Here is a list of Form 5695s from 1980 to 2022.
The Inflation Reduction Act HVAC Savings Under HEEHRA
Those aren’t the only savings you can reap if you invest in an energy-efficient HVAC system. The Inflation Reduction Act also has tax deductions in the form of rebates under its High- Efficiency Electric Home Rebate Act or HEEHRA. Once called the Zero-Emission Homes Act or ZEHA, HEEHRA is still as beneficial as ever. It just has a different name. This rebate program incentivizes more families to embrace energy- efficient electricity.
The goals of the HEEHRA program are to lower carbon emissions, improve indoor air quality, and reduce energy bill spending. This program will pay for the costs of electrification at a limit of $14,000. However, you must be a low-income or middle-income household to qualify.
As a low-income household, you can save 100 percent of the project costs at the max limit. Middle-income households can halve their electrification spending. The rebate is applicable toward the installation and purchase of the electric equipment. This point-of-sale rebate applies to wiring, ventilation, air sealing, insulation, circuit panels, heat pump clothes dryers, electric cooktops and stoves, heat pump water heaters, and heat pump HVAC units.
The Benefits of the Inflation Reduction Act
The Inflation Reduction Act is advantageous, introducing the following nationwide perks.
1. Higher Air Quality
Did you know that running a gas stove releases formaldehyde, carbon monoxide, and nitrogen dioxide? It also produces 2.5 microns of particulate matter, none of which does any favors to our lungs!
Making the shift to electricity or natural gases can reduce the rate of these irritants in the air.
Your children will grow up with less exposure to unwanted contaminants from outdoor and indoor pollution, sparing their lungs and helping them avoid medical conditions such as asthma.
Improving air quality can also save lives, especially in enclosed areas where employees breathe in a much higher rate of these and other contaminants than the average person.
2. Tax Savings
Who doesn’t look forward to receiving money from Uncle Sam at tax time? Between the HEEHRA program and the Energy Efficient Home Improvement Credit, you could look at hundreds to thousands of dollars in savings. The latter credit applies for more than a decade, so this isn’t a one-time benefit.
3. Greener Planet
We only have one planet, and she will continue to suffer until we can cut down on emissions. Switching to energy-efficient stoves, dryers, water heaters, and furnaces can reduce the emissions we release into the planet.
Embracing clean energy shrinks our carbon footprint and stops contributing to the carbon dioxide overload our world is experiencing.
4. Lower Utility Bills
An added benefit of going green with your HVAC and other home appliances and items is reduced electricity bill spending. You can save hundreds of dollars per year, which is thousands of dollars over several years and tens of thousands over a decade or more.
What would you do with that extra money in your pocket? Perhaps you use it to continue retrofitting your house to be greener, switching to an all-electric vehicle. Maybe you save up for your child’s college education fund or retirement. The possibilities are endless.
How the Inflation Reduction Act Influences the HVAC Industry
The introduction of the Inflation Reduction Act drives the HVAC industry toward a more energy-efficient future.
HVAC manufacturers should prioritize the production of greener systems, which the populace should seek in greater numbers after the introduction of the Inflation Reduction Act and its continually expanding benefits.
The HVAC industry might expand, as the Inflation Reduction Act has created over 170,000 jobs in clean energy. Some examples include clean energy accountants, mine engineers, welders, truck drivers, supply chain workers, assembly line employees, factory workers, contractors, plumbers, and electricians.
While change can be difficult to face, the HVAC industry should embrace these changes, as they will preserve our planet for current and future generations.
Bottom Line
The Inflation Reduction Act was introduced in 2022 and expanded in 2023. The $783 billion spent on climate change and clean energy has led to tax incentives and rebates, including HEEHRA and the Energy Efficient Home Improvement Credit.
These incentives allow qualifying homeowners to save hundreds to thousands on their new energy-efficient HVAC systems.
More beneficially still, the Inflation Reduction Act improves air quality, increases jobs across HVAC and other clean energy industries, preserves our health, and keeps our planet spinning.
Mini-Split Requirements to Qualify for a Discount Based on Region:
Northern Region:
This encapsulates the broader National DOE region.
Northern Region Qualifications:
SEER2: The Seasonal Energy Efficiency Ratio (SEER) is a measure of the cooling efficiency of a system. For the Northern Region, the SEER2 must be at least 16.
EER2: The Energy Efficiency Ratio (EER) gauges the cooling efficiency at a specific temperature. In the Northern Region, the EER2 needs to be at least 9.0.
HSPF2: The Heating Seasonal Performance Factor (HSPF) is indicative of the heating efficiency. For this region, HSPF2 must be a minimum of 9.5.
COP at 5°C: The Coefficient of Performance (COP) at 5°C should be 1.75. This metric measures the ratio of heating or cooling provided by a system relative to the energy consumed.
Capacity Ratios:
At 5°C/47°C, it should be around 70%.
At 17°C/47°C, it should be approximately 58%.
Southern Region:
This covers both the Southeast and Southwest DOE regions, giving it a larger geographic coverage than the Northern Region.
Southern Region Qualifications:
SEER2: The SEER2 requirement remains consistent with the Northern Region, demanding at least a 16 SEER.
EER2: For the Southern Region, the EER2 should be at least 12, which is higher than the Northern Region’s requirement.
HSPF2: The heating efficiency, measured by HSPF2, should be no less than 9.0.
Consortium for Energy Efficiency (CEE) Standards:
All the equipment must adhere to or surpass the efficiency benchmarks outlined by the Consortium for Energy Efficiency. However, these do not include any advanced tier levels. Importantly, the IRS has not yet set in stone the criteria to qualify for credits, indicating potential changes in the future. Click Here to See Rebates On Our Current Product Line
| AHRI Certified Reference Number | Outdoor Unit Model Number | Indoor Unit Model Number(s) | Indoor Type | North | South |
| 202053798 | VOM0733H7RE603 | VOM0733H7RE603 | NO | YES | |
| 202632179 | LIN13H14A17(O) | LIN13H14A17(I) | Mini-Splits (Non-Ducted) | NO | YES |
| 206330207 | EIN10H2V32(O) | EIN10H2V32(I) | Mini-Splits (Non-Ducted) | YES | YES |
| 206330209 | EIN18H2V32(O) | EIN18H2V32(I) | Mini-Splits (Non-Ducted) | YES | YES |
| 206330210 | EIN24H2V32(O) | EIN24H2V32(I) | Mini-Splits (Non-Ducted) | YES | YES |
| 207821947 | VOM18H7R2P7 | Ducted Indoor Units | NO | YES | |
| 207821948 | VOM18H7R2P7 | Non-Ducted Indoor Units | YES | YES | |
| 207821949 | VOM18H7R2P7 | Mixed Ducted and Non-Ducted Indoor Units | NO | YES | |
| 207821951 | VOM24H7R3P7 | Non-Ducted Indoor Units | NO | YES | |
| 207821954 | VOM36H7R4P7 | Non-Ducted Indoor Units | NO | YES | |
| 208286573 | WIN09H7H51(O) | WIN09H7H51(I) | Mini-Splits (Non-Ducted) | YES | YES |
| 208286574 | WIN12H7H51(O) | WIN12H7H51(I) | Mini-Splits (Non-Ducted) | YES | YES |
| 208286575 | WIN18H7H51(O) | WIN18H7H51(I) | Mini-Splits (Non-Ducted) | YES | YES |
| 208286577 | WIN24H7H51(O) | WIN24H7H51(I) | Mini-Splits (Non-Ducted) | YES | YES |