President Joe Biden’s Inflation Reduction Act is incentivizing low- and middle-income Americans to help mitigate climate change with up to $14,000 in tax credits and direct cash rebates offered to people who upgrade their homes to be more energy-efficient.

Consumers who buy energy-efficient appliances like dryers and stoves or install rooftop solar panels, for example, could benefit from the Inflation Reduction Act. Signed into law Aug. 16, it represents the largest federal investment in U.S. history to fight climate change.

But incentives and qualification requirements kick in on different timelines, and eco-friendly consumers will have to wait until 2023, 2024 or later to see many of the financial benefits.

About 40 percent of carbon emissions stem from buildings, so such incentives could help the U.S. achieve its goal of lowering fossil-fuel emissions, according to Lauren Urbanek, senior energy policy advocate at the nonprofit Natural Resources Defense League. 

Here’s how the incentive program will work for home upgrades, according to the Natural Resources Defense League, which works to cut carbon pollution and expand clean energy.

There are 2 different rebate programs

The HOMES Rebate Program provides more than $4 billion to states to help residents make their entire home more energy-efficient. Rebates are based on the energy savings the upgraded home will achieve. For example, a homeowner who makes changes that cut energy use by at least 35 percent can get up to $4,000 in rebates. That amount is doubled for low- and middle-income households, who can get up to $8,000 in rebates, CBS News reported.
High-Efficiency Electric Home Rebate Act (HEEHRA) provides rebates for low- and middle-income families to electrify their homes, such as by installing heat pumps or electric clothes dryers. The per household rebate is capped at $14,000, and households can’t receive two rebates for the same upgrade. For instance, if they claim a HOMES Rebate program for a heat pump, they can’t also get a rebate through the HEEHRA.

Types of upgrades covered

The HOMES Rebate program covers upgrades such as solar panels and new windows that help your home to be more energy-efficient.

The HEEHRA program gives rebates based on specific appliance purchases and other upgrades such as up to $8,000 for heat pumps, which rely on electricity rather than oil or gas to cool or heat a home. Heat pumps can reduce electricity use by about 50 percent compared with other electric heating such as baseboard heaters, according to the Department of Energy.

Rebates are supposedly available at the point-of-sale, such as when a consumer buys a heat pump through a home supply store.

Rebates are capped at $14,000 but low-income homeowners can get up to 100 percent of electrification projects covered — up to the cap of $14,000 in rebates. Middle-income consumers can get up to 50 percent of costs covered by the rebates up to the $14,000 cap.

Here are the caps on rebates for some upgrades in the HEEHRA program

$1,750 for a heat pump water heater
$8,000 for a heat pump for space cooling and heating
$840 for electric stoves, cooktops, ranges, ovens and electric heat pump clothes dryers
$4,000 for an electric load service center upgrade
$1,600 for insulation, air sealing and ventilation
$2,500 for electrical wiring

How will tax credits work?

Unlike rebates, which often apply when the item is bought, tax credits are received when consumers file their taxes and apply in the year that the project is finished. In legal terms, the project is completed when it is “placed in service,”.

The Inflation Reduction Act expands a homeowner efficiency tax credit, called the Energy Efficient Home Improvement Credit which covers up to 30 percent of the cost of energy upgrades, with a cap of $1,200 per year.

This tax credit was previously available to homeowners, but you could claim it only once in a lifetime. The Inflation Reduction Act enhances and tweaks the tax credit, which was set to expire soon, making it an annual incentive available for about a decade. Homeowners could claim the credit for upgrading windows one year and buying a heat pump the next.

“That’s really valuable, particularly for people who don’t have a lot of money in the bank,” said
Joel Levin, executive director of Plug In America.

How do you sign up for inflation reduction home upgrade programs

You can’t claim tax credits or rebates yet, Urbanek wrote. The programs are still a few months away from going live. States will operate the rebate program and are likely implementing their plans now. Point-of-sale rebates aren’t available to consumers yet, but stores should have details later this year, according to trade publication Clean Technica.

How can you prepare for when the program goes live?

There are two things homeowners can do. First, schedule an energy audit of your home, which usually costs about $400 and can give guidance on how to make a home more efficient, according to Home Advisor.

Second, start talking to contractors and line them up for projects when rebates and tax credits become available, Urbanek noted.

“Educating yourself about the types of equipment and what might be necessary for your own house can give people an idea of how to act as soon as this is available,” she wrote.