Inflation Reduction Act

What is the Inflation Reduction Act?

The Inflation Reduction Act is a federal law that is designed to address inflation, the current climate crisis and promote clean energy. A portion of the law funds state-administered HVAC rebate programs, such as the High-Efficiency Electric Home Rebate (HEEHR) program and the Energy Performance-Based Whole-Home (HOMES) program, as well as modified and extended HVAC tax incentives (25C Tax Credit, 45L Tax Credit, 179D Tax Deduction).*

The Inflation Reduction Act created a 10-year, historic plan for point-of- sale rebates and HVAC-related tax incentives for customers to invest in energy-saving retrofits and replace outdated and inefficient HVAC systems, including fossil-fuel systems, with eligible, high-efficiency ENERGY STAR® products.

What does the Inflation Reduction Act mean for HVAC Professionals?

As an HVAC professional, homeowners count on your expertise – especially when it comes to recommending heating and cooling equipment that provides additional energy-efficiency for the home. Now homeowners may also ask you about qualifying HVAC equipment related to tax incentives and rebates.

Tax credits and point-of-sale rebates can equal thousands of dollars for the installation of high-efficiency HVAC equipment. In fact, many low-to-middle-income customers may be eligible for free or significantly discounted qualifying ENERGY STAR® heat pumps due to rebate amounts.*

As an HVAC professional, the Inflation Reduction Act could mean more:

  • Replacements
  • Upgrades
  • Contributions to sustainability
  • Income and profit
  • Happy customers!

When do the programs and incentives from the Inflation Reduction Act begin?

  • Rebate programs are expected to be funded and ready for state distribution in late 2023 or early 2024.

  • Qualified 2022 equipment installs may be eligible for tax credits. Retroactive implementation means some taxpayers may not know they were eligible for credit for qualified installs.

  • New, expanded tax incentives programs began January 1, 2023.

As you continue to navigate the HVAC opportunities associated with the Inflation Reduction Act:

1. Educate your customers about the benefits of high-efficiency systems and electrification.

2. Pay attention to your state’s rebate program details as they become available in late 2023 or early 2024.

3. Talk to your 2022 customers who purchased qualifying systems to inform them of retroactive tax credit opportunities. Amana® brand, Daikin and Goodman® brand tax certificates are available online.

4. Remind customers to consult a tax professional to determine tax incentives for qualifying purchases.

Inflation Reduction Act Brochure – What it Means for HVAC Professionals (English)
Inflation Reduction Act Brochure – What it Means for HVAC Professionals (Spanish)
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High-Efficiency Electric Home Rebate (HEEHR)

Home Energy Performance-Based Whole-House Rebate (HOMES)

  • Income-based rebate program for “qualified electrification projects”
  • Point-of-sale rebates for qualified low-and moderate-income electrification projects, up to $14K per household, including $8K for Heat Pumps.
  • Qualified equipment is based on ENERGY STAR ratings.
  • Rebate criteria includes installation as part of new construction, replacement of non-electric appliance, or first-time purchase.
  • Incentivizes contractors to perform electrification projects in low to moderate income level communities with contractor rebates up to $500 per project.
  • Performance-based rebates
  • 15% measured or 20-35% modeled energy savings results in up to $2K rebate, which doubles to $4K for low and moderate-income households.
  • Qualified equipment is based on ENERGY STAR ratings.
  • More than 35% modeled energy system savings results in up to $4K rebate, which doubles to $8K for low and moderate-income households.
  • Requires contractor accreditation and third-party Quality Assurance.

Tax Incentives*

Section 25C
Residential Tax Credit
Section 45L
Homebuilders Tax Credit
Section 179D
Commercial Building Tax Deduction
  • Retroactive at the previous level for 2022.
  • Starting in 2023, the highest efficiency tier heat pumps (per the CEE) are eligible for tax credit of up to $2,000 per year, and electrical panel upgrades installed in conjunction with a heat pump will be eligible for a tax credit of up to $600.
  • 2023-2032 modifications increase the credit rate to 30% with an annual per-taxpayer limit of $1,200 and a $600 per-item limit.
  • Extends the energy-efficient new home credit through December 31, 2032; Increases and modifies the credit amount.
  • $2,500 credit for new homes that meet certain ENERGY STAR efficiency standards.
  • $5,000 credit for new homes certified as zero-energy ready.
  • Provides bonus credit for homes laborers and mechanics employed are paid prevailing wages.
  • Updates efficiency requirements, providing that a qualifying building must increase its efficiency relative to a reference building by 25%.
  • Creates new sliding scale to calculate tax deduction.
  • Removes the partial deduction path.
  • Provides bonus for projects paying technicians and workers’ local prevailing wage.