Federal tax credits, incentives and rebates for efficiency upgrades

By Miran­da Boutelle

Tax cred­its and rebates can help bridge the afford­abil­i­ty gap to high­er effi­cien­cy equip­ment for your home, allow­ing you to com­plete ener­gy effi­cien­cy upgrades that can low­er your ener­gy use and save you mon­ey in years to come.

First, know­ing the dif­fer­ence between a tax cred­it and rebate is impor­tant. A rebate is a pay­ment for pur­chas­ing or installing a qual­i­fied prod­uct or home improve­ment. Depend­ing on how the rebate pro­gram is set up, it may be pro­vid­ed at the time of pur­chase or applied for and received after instal­la­tion. In some cas­es, the rebate is pro­vid­ed through a cash pay­ment to those who com­plete eli­gi­ble projects.

A tax cred­it is a dol­lar-for-dol­lar amount that tax­pay­ers can report on their tax doc­u­ments to reduce the amount of tax­es owed. You apply for a tax cred­it when you file your tax doc­u­ments, so it typ­i­cal­ly takes longer to reap the ben­e­fits than it does with a rebate.

Accord­ing to Ener­gy Star, home­own­ers can qual­i­fy for up to $3,200 annu­al­ly in fed­er­al tax cred­its for ener­gy effi­cien­cy upgrades. Fed­er­al tax cred­its are avail­able for heat­ing and cool­ing sys­tem upgrades, includ­ing heat pumps, fur­naces, cen­tral air con­di­tion­ers, boil­ers and geot­her­mal heat pumps. Tax cred­its for Ener­gy Star-rat­ed heat pump water heaters cov­er 30% of the project cost, up to $2,000.

You can also improve your home’s envelope—the por­tion of the home that sep­a­rates the inside from the out­side— with tax cred­its for insu­la­tion, win­dows and sky­lights.

If an ener­gy effi­cien­cy upgrade requires improv­ing the elec­tri­cal pan­el in your home, there’s also a tax cred­it for that. You can receive 30% of the cost of the pan­el upgrade, up to $600.

These fed­er­al tax cred­its are avail­able through 2032. You must own the home you’re upgrad­ing, and it must be your pri­ma­ry res­i­dence. Fed­er­al tax cred­its only apply to exist­ing homes in the Unit­ed States, not new con­struc­tion.

The Infla­tion Reduc­tion Act of 2022 expand­ed avail­able fund­ing for many home upgrades. The act allo­cat­ed $8.8 mil­lion for home rebate pro­grams to be imple­ment­ed at the state lev­el, and this fund­ing is offered in two dif­fer­ent pro­grams. The HOMES Pro­gram allows up to $8,000 a home for stan­dard-income house­holds. High­er rebates are avail­able for low- to mod­er­ate-income house­holds. The HEAR Pro­gram offers rebates of up to $14,000 a home for qual­i­fied, effi­cient elec­tric equip­ment for low- to mod­er­ate-income house­holds.

These pro­grams are designed to bol­ster exist­ing pro­grams and should be avail­able in late 2024 or ear­ly 2025. Check with your elec­tric coop­er­a­tive or state office to find out if they are being offered in your state.

Addi­tion­al ener­gy effi­cien­cy rebates might also be avail­able. More than half of U.S. states require ener­gy effi­cien­cy pro­grams for res­i­dents, accord­ing to the Amer­i­can Coun­cil for an Ener­gy-Effi­cient Econ­o­my. These pro­grams can help peo­ple save mon­ey on their elec­tric bills and help states meet cli­mate goals, reduce sys­tem costs and improve the elec­tric grid.

Miran­da Boutelle is the chief oper­at­ing offi­cer at Effi­cien­cy Ser­vices Group in Ore­gon. She has more than 20 years of expe­ri­ence help­ing peo­ple save ener­gy at home and writes on ener­gy effi­cien­cy top­ics for the Nation­al Rur­al Elec­tric Coop­er­a­tive Asso­ci­a­tion, the nation­al trade asso­ci­a­tion rep­re­sent­ing near­ly 900 elec­tric co-ops.