The rising costs of goods and services have become a cause for concern among consumers and businesses alike. In response, governments worldwide are exploring measures to combat inflation and stabilize economies. One such effort is the Inflation Reduction Act, which has far-reaching implications for various industries, including the HVAC sector. In this article, we’ll delve into the details of the Inflation Reduction Act and explore how it affects the heat pump industry.
Understanding the Inflation Reduction Act
The Inflation Reduction Act is a comprehensive economic policy aimed at curbing inflation rates and promoting financial stability. By employing a range of strategies, governments intend to alleviate the burdens of escalating prices on consumers and encourage steady economic growth. These strategies can include controlling interest rates, managing money supply, and adjusting fiscal policies to rein in excessive inflation.
Impact on the HVAC Industry
The Inflation Reduction Act updates and extends the Clean Energy Investment Tax Credit to provide up to a 30% credit for qualifying renewable energy projects, such as a heating upgrade, cooling upgrade, hot water heating upgrade, electric panel upgrade or solar installation.
These tax credits provide up to $3,200.00 annually and can be combined with Massachusetts and Rhode Island state rebates and 0% interest loan programs.
The incentive levels are as follows:
Heat Pumps: 30% of the project up to $2,000.00
Minimum Efficiency Requirements:
- SEER2: 16 SEER or greater
- EER2: 9 or greater
- HSPF2: 9.5 or greater
Heat Pump Water Heaters: 30% of the project up to $2,000.00
Minimum Efficiency Requirement:
- All heat pump water heaters that have earned the ENERGY STAR rating are eligible for this credit.
Boilers: 30% of the project up to $600.00
Minimum Efficiency Requirement:
- 95% AFUE or greater
Furnaces: 30% of the project up to $600.00
Minimum Efficiency Requirement:
- 97% AFUE or greater
Central Air Conditioning: 30% of the project up to $600.00
Minimum Efficiency Requirements:
- For split systems, Energy Star certified equipment with a SEER2 of 16 or greater are eligible. All Energy Star certified packaged systems are eligible.
Electric Panels: 30% of the project up to $600.00
Requirements:
- Is installed in a manner consistent with the National Electric Code
- Has a load capacity of not less than 200 amps
- Is installed in conjunction with, and enables the installation and use of:
- Any qualified energy efficiency improvements
- Any qualified energy property (heat pump water heater, heat pump, central air conditioner, water heater, furnace or hot water boiler, biomass stove or boiler)
Solar Panels:
- 30% for property placed in service after December 31, 2016, and before January 1, 2020
- 26% for property placed in service after December 31, 2019, and before January 1, 2022
- 30% for property placed in service after December 31, 2021, and before January 1, 2033
- 26% for property placed in service after December 31, 2032, and before January 1, 2034
- 22% for property placed in service after December 31, 2033, and before January 1, 2035
Please note, in addition to limits on the amount of credit you can claim for a particular piece of equipment, there are also annual aggregate limits. The overall limit for one tax year is $3,200.00. The total annual limit is $1,200.00 for any combination of improvements, such as furnaces or boilers. However, any combination of heat pumps or heat pump water heaters are subject to a higher annual total limit of $2,000.00.
If you have any questions on how these credits will work relative to your personal financial/tax situation, we recommend you contact your CPA or tax preparer.
How Can This Help My Home?
By increasing credits on many home improvement projects, The Inflation Reduction Act helps to make increasing your homes energy efficiency more affordable. For some homeowners, it may be great news that the furnace or boiler replacement they knew they needed to do will come with an additional $600.00 incentive they didn’t know existed before. For other homes, this may mean they can do a complete overhaul of their home’s energy efficiency for a much lower cost than ever before. As an example, we have seen some homeowners replace an oil system with a heat pump and a heat pump water heater. To do so, sometimes an electric service upgrade from 100 amps to 200 amps is necessary. After doing so, some homeowners then choose to install a solar system and use the solar production to offset their utility costs. In this scenario, if spaced out correctly, customers could get incentives upwards of $30,000.00, as well as Mass Save 0% interest, 84-month HEAT loan financing on part of their project!
How Can We Help?
At BDL Heating & Cooling, we can design recommendations for your home that maximize the incentives available to you. Credits from the Inflation Reduction Act can be combined with Mass Save incentives, which include rebates up to $10,000.00 and access to the Mass Save 0% interest, 84-month HEAT loan program. We are knowledgeable about what systems qualify, as well as what systems make the most sense for your home, your budget and your long-term plans. We also partner with local electricians and solar companies and will provide a holistic view of your home’s energy efficiency, helping to connect you with whomever you need to cover all your bases. Call us today at 508-643-5114 and we can guide you through the process of maximizing these incentives and bringing your home up to today’s efficiency standards.