2023 Available IRA Tax Credits: What You Need to Know

IRA Tax Credits

The Inflation Reduction Act of 2022, the largest piece of legislation ever to tackle climate change, was signed into law last year, and has now taken effect. The goal is to alleviate inflation, lower prescription drug prices and other measures, including lowering our country's carbon emissions. It means huge investments in clean energy sources, to the tune of $369 billion.

What does it mean for HVAC pros? If you don't know, don't worry. At Goodin, we've got your back. We are always watching for any legislation that can affect the industries we serve, and as such, this new law has been front and center for us.

Part of the new law, known as IRA, offers rebates and tax incentives to homeowners who install qualified heat pumps. The rebate piece of this puzzle is part of HEEHRA, the High-Efficiency Electric Home Rebate Act (part of the IRA). Some homeowners may even be able to get the heat pumps for free.

This blog will explain the IRA tax credits, what they mean for the homeowners you serve, which heat pumps qualify and which don't, and what it all means for you.

Why heat pumps?

The IRA is all about helping the development of renewable energy sources. Think solar and wind power. Hydro power. Unlike something like fossil fuel, these types of energy producers don't have any carbon emissions. They're clean and green.

So, where do heat pumps come in? The IRA is including homeowners in this equation. Funding a hydro power plant is one thing but making individual homes "greener" produces a huge impact as well. It covers some things you don't deal in, like insulation and upgrades to doors and windows. But the legislation zeroed in on heat pumps because, as any HVAC pro can tell you, they're an AC and heater in one, they run more efficiently than older, traditional furnaces, and many of them can help the home have better air quality, too.

New IRA provisions for homeowners

The new IRA provisions come in the form of rebates and tax credits for homeowners. How much of a rebate or tax credit is based on household income. Here's how it shakes out:

  • Low-income homes: 100% rebate on qualifying heat pumps, up to $8,000
  • Middle-income homes: 50% rebate, up to $8,000
  • High-income homes: 30% tax credit, up to $2,000

For homeowners, figuring out which bracket they're in can be tricky. If the household income is 80% below the median income of the area, they'll get that 100% rebate. So, a free heat pump. If the household income is 81-150% of the area's median income, they qualify for that 50% rebate. But even wealthy households, whose income exceeds 150% of the area's median income, can take advantage of the savings with a 30% tax credit.

But, how do they know what the median income is? Fannie Mae is on it. Here's a link to provide your customers. They can pop in their address and find out what their area's median income is.

Which heat pumps qualify for the IRA tax credit ... and which don't?

When you're talking to homeowners about upgrading their HVAC system and they're considering a heat pump, they need to know which qualify for this rebate and which don't. Basically, it boils down to meeting or exceeding the Consortium of Energy Efficiency's most efficient tier and being ENERGY STAR-certified. Here are the requirements:

  • Ducted split systems: ENERGY STAR systems are qualified
  • Ductless mini-split systems: ENERGY STAR plus SEER2 16 or greater, EER2 12 or greater and HSPF2 9 or greater
  • Heat pumps with ENERGY STAR Cold Climate rating: Ducted: EER2 10 or greater, Mini-Split: SEER2 16 or greater, EER2 9 or greater, HSPF 9.5 or greater

At Goodin Company, we have a full line of ENERGY STAR heat pumps and units that meet all of the standards for you to choose from! If in doubt, talk to a pro at your local branch to make sure the units qualify for this program.

As with everything tied up in governmental red tape, there are several exceptions and rules, including:

  • Improvements must be made to an existing home. New home construction does not qualify.
  • If the home is used solely as a business, the credit doesn't apply.
  • Electric or natural gas heat pumps qualify, as do electric or natural gas heat pump water heaters.

How to claim the rebate or tax credit

If the homeowner qualifies for a rebate, meaning they fall into the low- or middle-income household range, those rebates come from HEEHRA at the Department of Energy. They can learn more here.

For the tax credit, homeowners may fill out this form and include it with their taxes or speak to their tax professional.

One important point for contractors: Installation is also covered under both the rebates and the tax credits. And because this legislation is so new, many states have not released specific guidelines. We'll keep an eye on this issue for you.

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