Inflation Reduction Act For Heating & Cooling Upgrades

inflation reduction act HVAC

What is the Inflation Reduction Act?

You may be familiar with several steps the automotive industry is taking to make advancements in electric vehicle innovation. What you may not know is that there is also a push to advance electric innovation in our homes. This movement is called the electrification of heat.

To accelerate this movement, The United States congress signed into law The Inflation Reduction Act (IRA), on August 16, 2022, which earmarked nearly $370-billion for various climate and energy programs including the electrification of heat. The IRA is a ten-year program, that is capped annually (rather than through the lifetime of the program). You may have the potential to utilize this program year after year while installing energy efficient equipment in your home through 2032.

The Inflation Reduction Act will offer homeowners tax credit programs and possibly some rebates intended to increase energy-efficient heating and cooling through electrification while reducing the homes' carbon footprint. Logan Services is focused on providing its customers with opportunities;

  • To achieve a comfortable home.
  • To reduce the need for fossil fuels.
  • To utilize tax credits and incentives to save money on home improvement upgrades.

What is the Electrification of Heat?

The electrification of heat is sometimes known as electrification. Electrification is movement towards producing and using clean energy rather than fossil fuels to produce home heat. A dual-fuel system or hybrid heating system uses heat pump technology for air conditioning your home in the summer. Then, the system will reverse its refrigerant cycle in order to use electric heat to warm your home in the winter.  The hybrid method of heat allows you to switch to gas or propane for heating during extreme cold temperatures. This is the most efficient way to heat your home both on mild and excessively cold days.

What HVAC systems and heat pump units will qualify for a tax credit?

high efficiency heat pumpHigh efficiency heat pumps are expected to be some of the appliances incentivized through the Inflation Reduction Act. Although full details have not yet been announced, the Energy Efficient Home Improvement tax credit (25C) would offer a credit of 30% of the project’s cost (potentially equaling up to $2,000) for a qualifying heat pump. Qualifications will likely be based on performance tier, hinging on system match up performance.

There is good news for homeowners in Ohio that enjoy a nice hot heat output. You do NOT have to get rid of your propane or gas furnace to qualify for a tax credit. Gas and propane furnaces also qualify tax credits.

  • A 97%+ gas or propane furnace may qualify for tax credits up to $600.
  • high-efficiency air conditioner may qualify for tax credits up to $600.
  • A high-efficiency air conditioner matched with a high-efficiency gas or propane furnace may qualify for tax credits up to $1,200.
  • A high-efficiency heat pump may qualify for tax credits up to $2,000.
  • A high-efficiency heat pump matched with a high-efficiency gas or propane furnace may qualify for tax credits up to $2,600.

If you are wanting to make an upgrade that can achieve the best home efficiency and the best tax credit, heat pumps are where you need to focus your research. Our team suggests you consider a dual-fuel or hybrid heating/cooling system by adding a heat pump to your new gas or propane furnace. 

Contrary to previous tax credit incentives, this is an annual credit. Additionally, this tax credit program is set to be in effect for ten years (through 2032). That means for the next ten years you will be able to apply for tax credits on various home upgrades which promote electrification and reduced energy usage! 

For more information on how a dual-fuel system would work for your home, schedule a FREE, in-home estimate with one of our friendly comfort consultants. He/she will be able to discuss various choices with you and help you select the best system to meet your comfort concerns, your home design, and your budget.

What should I know before I purchase a new heat pump?

It’s important to keep in mind that efficiency ratings will likely determine how much of a tax credit you could receive when purchasing a new heat pump system. Some models and units will qualify; others will not.  It’s important you read directions, get insight from your HVAC company and tax accountant, and follow the guidelines before making a decision if you are interested in qualifying for any special tax incentive. 

It's also worth a mention that tax credits will vary by geographic region. Some regions in the United States will receive more in credits, others will receive a lesser credit. When talking with family members and friends about your upcoming heat pump installation, make sure that you are comparing notes within the same state or region. Out of region advice won’t do you much good when it comes to making an informed decision.

It’s extremely important to brief your tax preparer or accountant on your upcoming HVAC installation. He/she will be most likely to give sound advice on whether you will qualify for any credits. Your income and previous tax history may affect your eligibility to receive credits, and it’s best to be informed rather than guess your way through the project. 

Please note: The 2023 version of the 25C tax credit is non-refundable. A non-refundable tax credit means a taxpayer will not receive a tax refund for any amount that exceeds the taxpayer’s tax liability. The taxpayer claiming a non-refundable credit can only use it to decrease or eliminate a tax liability. 

What if I purchased a heat pump in 2022?  Do I still qualify?

According to the IRS, the previous tax credits that expired December 2021, was retroactively extended for the 2022 tax year. This means if you purchased a heat pump in 2021 or 2022, you may be able to receive a 25C credit for installation. Collect any installation certificate information you have and be sure to have a conversation with your tax preparer to learn next steps.

Is there a chance tax credit funding could run out before I have my heat pump installed?

Like many US tax programs, there is no set budget for the IRA tax credits. The tax system does not have an allocated limit on the funding for any calendar year. According to all documents obtained by Logan Services, credits will be available to all who qualify through 12/31/2032.

How do I learn more about qualifying for the Inflation Reduction Act tax credits?

Much of the tax credit qualification rests on geographic guidance as well as efficiency ratings. All our comfort consultants, technicians, and customer service representatives will be able to help answer your questions about our various heating and cooling unit choices that qualify for tax credits. The best way to learn about these tax credits is by scheduling a FREE in-home estimate which will help guide you through any heating electification upgrade you plan on making to your home.

To learn more about how you may be impacted by the Inflation Reducation Act visit the Consortium for Energy Efficiency.

Another good resource to learn more about increasing your homes' energy efficiency visit this Kiplinger blog

The Department of Energy offers a chart highlighting the incentives homeowners can apply for through usage of the Inflation Reduction Act tax credits. You can find that information here

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