How the New Inflation Reduction Act Could Save You Thousands on Home Energy

US President Joe Biden signed the Inflation Reduction Act into law today and it could mean thousands of dollars for you to improve your home’s energy efficiency. The act makes significant changes to certain aspects of health care and the tax code and is projected to reduce greenhouse gas emissions by 40{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} by 2030. 

One way the IRA reduces emissions is by dedicating a lot of money to tax credits and rebates for, essentially, home improvement projects. From flashy upgrades like electric appliances to hidden improvements like new wiring and insulation, many American homeowners can get up to $14,000 for energy efficiency improvements, not including the increased solar tax credit. We’ll lay out the most significant rebates below.

You can save energy and money even before making improvements to your home. Check out the surprising savings you can get by turning off your lights, unplugging some appliances and sealing your windows with weatherstripping

What’s the point of electric appliances and energy efficiency?

There are two main benefits to making homes more energy efficient and making them run on electricity: avoiding the worst of climate change and saving money.

Electrifying a house means swapping out fossil fuel-burning appliances for ones that run on electricity. When your natural gas furnace needs replacing, get a heat pump. When you need a new water heater, make sure it’s electric. This can save you hundreds of dollars a year, depending on where you live and your energy usage.


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Similarly, a well-sealed and insulated home can save an average of 15{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} on heating and cooling costs, the US Environmental Protection Agency said. 

Because addressing climate change requires reducing fossil fuel consumption, reducing its use in your home is a step in that direction. Even if the electricity you use comes from coal, one of the most carbon intensive sources of energy, as your local utility opts for cheaper and greener energy sources in the future, your electricity consumption will green right along with it.

The IRA is projected to reduce American carbon emissions by 42{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} by 2050, according to an analysis of the bill by a group of organizations led by the Zero Lab at Princeton. That’s still behind the stated goal of 50{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} by that time, but it’s a significant move, assuming the projection bears out.

What rebates does the IRA offer to homeowners?

The IRA offers rebates for new technology and for sealing and insulating a home. Within a certain income bracket, you can get $8,000 back for a heat pump, $1,750 for heat pump water heater, and $840 for an electric range or oven and electric heat pump clothes drier. Because adding hefty electrical appliances might overwhelm an older home’s electrical infrastructure, the bill also offers $4,000 for upgrading an electrical panel and up to $2,500 for wiring work. You can also get back up to $1,600 of the cost of insulation or air duct sealing, which will improve the efficiency of your heating and cooling system. 

Households pulling in 80{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}-150{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of an area’s median income can get back 50{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of the cost of these projects, up to the limits for individual items and up to $14,000 total. Households making below 80{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of the median income can get back 100{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of the cost.

The IRA also makes significant changes to a more familiar tax credit. Under the new rules, the federal solar tax credit for residential solar gets boosted from 26{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} to 30{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} and is locked in through 2031. It drops to 26{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} in 2033 and 22{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} in 2034. Before, the credit was at 26{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} and set to decrease to 22{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} in 2023 before disappearing altogether.

The IRA also creates tax credits for 30{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of the cost of energy efficiency improvements including new windows ($600), doors ($500) and heat pumps ($2,000). Homeowners can claim up to $1,200 per year back on their taxes. Credits for efficiency decrease on the same schedule as solar.

The rebate program will be administered by the states, so the specifics of applying for and receiving rebates may vary, and the program isn’t yet in place. No matter where you live, though, you’ll likely soon get a hand paying the sometimes expensive cost of electrifying your home.