Federal Tax Credits & Rebates

The Inflation Reduction Act (IRA) includes tax credits that reward homeowners for purchasing qualifying high-efficiency HVAC systems, including furnaces, ACs, heat pumps, fans, and more.

If you’re planning home improvements that will boost the energy efficiency of your house, the Inflation Reduction Act could save you money on your projects. Thanks to Uncle Sam, the IRA, which aims to curb inflation, includes extended and expanded tax credits for energy-efficient home improvements, giving ordinary Americans incentives to go green — and save money in the process.

While there are several tax credits and rebates designed to lower carbon emissions in the home, the renewed Energy Efficient Home Improvement Tax Credit (25C) may be the most relevant. This updated version of the Nonbusiness Energy Property Credit greatly increases the tax credit limit for installing specific high-efficiency equipment, such as heat pumps, central air conditioning systems, and furnaces through 12/31/2032. This means homeowners can get a tax break on energy-efficient HVAC upgrades, while helping to contribute to a cleaner environment.

Keep reading to learn more about the IRA, this exciting initiative, and how many of Trane’s energy-efficient residential heating and cooling systems are eligible for savings under this updated tax credit program.

What is the Inflation Reduction Act?

The Inflation Reduction Act (IRA) is a large bill that is designed to limit inflation by reducing the deficit and addressing some of the most significant issues the United States is facing in climate control and health care. Signed into law in August 2022, the $740 billion climate and health care legislation addresses a wide range of issues, from the high cost of prescription drugs to energy efficiencies and electric vehicles. The bill includes clean energy tax credits and other relevant tax incentives that homeowners can benefit from when they make green upgrades.

How does the IRA and its rebates and tax credits open doors for homeowners?

One of the bill’s primary objectives is to address climate change and ultimately to slow down global warming. Focusing largely on encouraging businesses to become more eco-friendly and start taking clean energy production seriously, there are benefits for individual Americans in the bill as well. The IRA can help homeowners reduce their tax bill through rebates and tax credits for energy-efficient windows, doors, water heaters, furnaces, and heating and cooling systems.

Energy Efficient Home Improvement Tax Credit (25C)

One of the most important aspects of the IRA for homeowners is the Energy Efficient Home Improvement Tax Credit. Previously known as the Nonbusiness Energy Property Credit, this tax credit is new and improved through the IRA and provides opportunities to save on your energy-efficient upgrades.

Starting in 2023, the tax credit will be equal to 30 percent of the cost for all eligible home improvements made from January 1, 2023 to December 31, 2032. The 25C credit has an annual cap of $1,200 (including up to $600 for a qualified air conditioner or gas furnace), or up to $2,000 with a qualified heat pump, heat pump water heater, or boiler.

Additionally, there are no income requirements for this tax credit and starting in 2023, 25C is no longer a ‘one time’ credit, but an annual one.

What if homeowners had eligible equipment installed in 2022?

Homeowners who had eligible HVAC equipment installed on or after January 1, 2022, may be eligible for retroactive tax credits under this program. The 2022 tax credit is not as robust, but will credit 10 percent of the costs of installing qualified equipment and 100 percent of the costs associated with installing qualified water heaters, heat pumps, central air conditioning systems, furnaces, hot water boilers and air circulating fans.

With this tax credit, there is a lifetime limit of $500 or $300 for certain water heaters, heat pumps, and air conditioning systems for systems purchased in 2022.

How does the Home Improvement Tax Credit (25C) help the environment?

The Home Improvement Tax Credit (25C) is designed to accelerate the adoption of all-electric HVAC equipment as well as lower utility bills for homeowners. This all-electric switch means replacing equipment powered by fossil fuels with equipment that relies on electricity as its source of energy.

Electric HVAC equipment upgrades can also cut down on fossil fuel usage, if not totally eliminate it, with a hybrid system. This ‘cleaner’ electricity trend has the potential to significantly reduce carbon dioxide emissions and mitigate the devastating impacts of climate change by reducing energy usage with products like a heat pump — which can also help reduce operating and maintenance costs for homeowners. The Home Improvement Tax Credit (25C) rewards homeowners for switching to these environmentally-friendly HVAC options.

Rebate Programs

The HOMES Rebate Program allocates $4.3 billion to the Department of Energy to implement a rebate program for homeowners making whole-house energy upgrades. An example of a qualifying upgrade would be replacing an old central HVAC system with a mini-split heat pump system. Homeowners can claim up to $2,000 (or 30% of the cost) toward the purchase and installation of the heat pump, plus any electrical upgrades needed to ready the home.

Additionally, state-based programs under the HOMES Act umbrella offer low-and moderate-income households rebates on heat pump installations of up to $8,000 based on eligibility requirements. 

Please contact our office for tax credit and rebate program specifics.