2023 Federal Tax Credits and The Inflation Reduction Act

Feb 8, 2023

What is the Inflation Reduction Act?

To help reduce the effects of inflation, the U.S. Government has passed the Inflation Reduction Act of 2022. Of particular interest to homeowners, this act includes a number of tax credits for the installation of ENERGY STAR® certified home heating and cooling products. These include:

Tax Section 25C, Nonbusiness Energy Property Credit

Effective Jan 1, 2023: Provides a tax credit to homeowners equal to 30% of installation costs for the highest efficiency tier products, up to a maximum of $600 for qualified air conditioners and furnaces, and a maximum of $2,000 for qualified heat pumps.

The Details on 25C: heat pumps, heat pump water heaters, and more

  • 30 percent capped tax credit for residential efficiency and electrification upgrades, up to $3,200 per year.
    • Annual total credit for heat pumps and heat pump water heaters capped at $2,000
    • Annual total credit for other upgrades is capped at $1,200; limits per upgrade may apply
    • Covers purchase and installation costs
    • Qualifying upgrades subject to efficiency requirements
  • Up to $600 for electrical panel upgrades if they are installed in conjunction with and enable a heat pump or HPWH
  • The credit limit is annual (not lifetime), so it resets each year and can be used again
  • Nonrefundable, so households must have an adequate tax liability to offset

Frequently Asked Questions

  • Will 25C reduce up-front costs for consumers? No, but they will reduce total costs.
  • Can renters utilize 25C? Yes! Renters may be specifically interested in the 25C credit for portable, window-unit heat pumps.
  • Who qualifies for 25C? Anyone with adequate tax liability to offset can qualify for 25C.
  • Can 25C stack with other incentives? Yes! 25C and 25D can stack with other federal incentives like the HEEHR and HOMES rebates.
  • Does 25C cover electrical panel upgrades? 25C cover panel upgrades if they are installed in conjunction with and enable the installation of another covered upgrade, like a heat pump.
  • Does 25C have efficiency requirements? Yes. 25C is applicable only to heat pumps and HPWHs that meet the Consortium for Energy Efficiency’s highest non-”advanced” tier. ENERGY STAR-certified doors and ENERGY STAR Most Efficient-certified windows also are eligible.
  • What does it mean that 25C resets every year? By resetting every year, 25C will be available to households for multiple upgrades over multiple years. For example, suppose a household maxes out 25C in one year by claiming a $2,000 credit for a heat pump and a $1,200 credit for insulation. In that case, that household can utilize 25C again in a future year for a HPWH and an electrical panel upgrade.

Tax Section 25D, Residential Energy Efficient Property

Provides a tax credit to homeowners equal to 30% of installation costs for ENERGY STAR® geothermal heat pumps until 2032. That percentage drops to 26% in 2033 and 22% in 2034.

High-Efficiency Electric Home Rebate Program

Provides income-depending rebates to eligible homeowners including:

  • Up to $8,000 for all-electric Heat Pumps
  • Up to $4,000 for electrical load service center
  • Up to $2,500 for electric wiring
  • Up to $14,000 maximum for all

Local Rebates

Benton PUD Rebates: https://www.bentonpud.org/Energy-Programs/Rebates/Rebates 

Cascade Natural Gas Rebates: https://www.cngc.com/energy-efficiency/washington-conservation-incentive-program/

Franklin PUD Rebates: https://www.franklinpud.com/energy-efficiency/residential-rebate-programs/

City of Richland Rebates: https://www.ci.richland.wa.us/departments/energy-services/energy-efficiency/residential-programs 

Benton REA Rebates: https://bentonrea.org/energy-savings/residential-rebates/

Energy conservation is the best way for you to reduce your power bill! We are happy to discuss energy conservation with you, discuss ways to help you manage your electric consumption, and what we can do to help you live in an energy-efficient home. Give us a call today at 509-396-2653.