What Energy Rebates in the Inflation Reduction Act Mean for You

Are you in the market for an energy-efficient appliance? Rebates funded by a new federal law could help save you money.

New energy-efficient rebate programs are aimed at helping low- and middle-income Americans go green by giving discounts on things like electric stoves, heat pumps and ventilation upgrades.

These rebates are funded through the Inflation Reduction Act, a sweeping piece of legislation aimed at combating climate change signed into law Aug. 16.

Details of the rebate roll out are still murky, but here’s what you need to know.

What Appliances and Upgrades Qualify for a Rebate?

Numerous rebates on energy-efficient appliances are available through the Inflation Reduction Act.

The law provides $4.5 billion in funding for these rebates, and outlines specific amounts homeowners can qualify for.

Here’s a roundup of appliance and equipment rebates. You could get up to:

• $840 for an electric stove, cooktop, range or oven. An electric heat pump clothes dryer also qualifies.
• $1,750 for a heat pump water heater.
• $8,000 for a heat pump for space heating or cooling.

The act doesn’t lay out any high-efficiency requirements for these rebates beyond the minimum standards required by the U.S. Department of Energy.

There are rebates for home upgrades too. You could get up to:

• $1,600 for insulation, air sealing and ventilation.
• $2,500 for electric wiring.
• $4,000 for an electric load service center upgrade.

Another Rebate If You Lower Your Home’s Overall Energy Usage

Aside from the appliance-specific rebates mentioned above, you can qualify for a rebate by completing a more holistic energy improvement project.

Specifically:

• You can qualify for up to $8,000 in rebates or 80% of the project cost, whichever is less, for energy-efficient retrofit projects that reduce your home’s energy usage by 35% or more.
• You can qualify for up to $4,000 in rebates or 80% of the project cost, whichever is less, for retrofit projects that reduce your home’s energy usage by 20% to 35%.

An additional $4.5 billion in federal funding is earmarked for this program, known as Home Owner Managing Energy Savings (HOMES) rebate program.

Who Qualifies for an Energy Rebate?

These rebates come with income limits. And those limits will vary based on where you live.

Specifically: 

• You can receive 100% of the rebates available if your household income is less than 80% of your area’s median family income.
• You can receive 50% of the rebates available if your household income is 80% to 150% of your area’s median family income.
• You do not qualify for a rebate if your household income is above 150% of your area’s median family income.

Figures from the Department of Housing and Urban Development (HUD) will be used to determine median income. You can find your area’s median income by using this tool on HUD’s website.

States will decide how to define an “area.” It could be based on the median income of your zip code, city, county or state.

These limits will vary across the country. The median income in Boise, Idaho, is $87,500, for example, but $134,600 in Seattle and $65,000 in Joplin, Missouri.

How Will the Energy Rebates Work?

The federal government will give each state grant money to implement its own rebate program.

The U.S. Department of Energy has laid out a rough framework for states to follow, but it’s up to states and tribal governments to establish their own qualifying programs.

There is $9 billion in total funding earmarked for rebates, and that money will be available to states through September 2031.

When and Where Can You Get a Rebate?

Don’t expect these measures to go into effect right away. It might be a while before these energy-efficient home rebates actually reach consumers.

States must apply and get approval for the funding first, and experts say it could take months for states to set up their own individual programs after that.

It also isn’t clear exactly how the discounts will be applied. It will likely be at the point of sale, though state-run agencies may award the rebates directly to consumers.

In the meantime, save any receipts and paperwork related to the purchase of appliances or improvements that may qualify and make sure to follow your state’s specific rules when they roll out.

Are Efficiency Rebates the Same as a Tax Credit?

No, but the Inflation Reduction Act does provide a host of federal tax credits to Americans who make certain energy efficient upgrades to their homes.

These tax credits, unlike the rebates, will be available regardless of your income.

You can start claiming these tax credits on your federal income tax return starting next year.

One provision provides up to a 30% tax credit if you purchase and install solar panels on your roof or a battery storage system with a 3 kilowatt hour capacity or higher.

You can also qualify for up to $1,200 in other various energy-related tax credits each year. Credits will be available for 10 years starting in 2023.

These credits include but are not limited to:

• $150 for home energy audits.
• $250 for an exterior door (or $500 total for all exterior doors).
• $600 for exterior windows and skylights, central air conditioners and electric panels. Natural gas, propane or oil water heaters and boilers are also included.
• $600 for upgrading your electrical supply if it’s required for energy-efficiency projects.

There’s one exception to the $1,200 annual tax credit limit: You can qualify for a larger, $2,000 credit by installing electric or natural gas heat pumps and/or biomass stoves and boilers.

Aside from credits for home improvement projects, you can also qualify for tax incentives if you purchase a new or used electric vehicle.

All of these tax credits are nonrefundable. That means they reduce how much you owe the federal government at tax time, but they won’t boost your tax refund. If you don’t normally owe money at tax time, these credits likely won’t do much.

Feeling confused? Get a refresher on how tax credits and tax deductions work.

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.

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