You know energy efficiency is good for your home and family in the long run. But let’s be honest: Sometimes, it’s hard to will yourself to pay the upfront costs for the environmentally friendly, highly effective upgrades, even when you know you’ll be rewarded with a return on your investment via lower energy costs and the value added to your home. That’s why today we’re going to help you find ways to lower the cost of improving your home’s energy efficiency.
Energy-Efficiency Rebates
Energy-efficiency rebates put a specified portion or percentage of the total cost of an efficiency upgrade back into your pockets. It may be a “point of sale” rebate, meaning you get money back instantly. Or, you may need to pay the full price for, say, a new water heater, then submit your rebate application and wait to receive reimbursement in the mail. Rebates are typically provided by utility companies or equipment manufacturers. The Inflation Reduction Act (IRA) has greatly expanded your rebate options by establishing two new government rebate programs (we’ll dive into those more below or you can check out our handy IRA infographic here).
Energy-Efficiency Tax Credits
An energy-efficiency tax credit, on the other hand, rewards you for making smart home upgrades by offsetting your tax liability. In other words, it reduces the amount of money you’re responsible for paying on your next tax return. Note that it’s not a rebate check sent to you after you file your taxes. This type of savings program only benefits you if you have tax liability. Tax credits originate with federal, state, and occasionally city governments.
Other types of programs that we won’t get into here include:
Government grants for low-income homeowners
Sales tax exemptions for energy-efficient appliances or equipment (year-round in California and at certain times of year in some other states)
Energy-efficiency financing (enables you to bundle energy-efficient upgrade costs into your mortgage)
Now, let’s talk about how to take advantage of these incentives.
From Your Utility
Electricity and natural gas utilities offer a variety of rebates. The most common are for new heating, cooling, and ventilation (HVAC) systems, water heaters, ENERGY STAR®-certified appliances, and smart thermostats. Some utilities also offer rebates for insulation or ENERGY STAR-certified windows, or they provide a rebate when you recycle old, inefficient refrigerators.
Check whether your utility offers free home energy audits (also referred to as “home performance evaluations,” “energy assessments,” and “energy analysis”). If you begin with an audit, your utility may provide some weatherization and efficiency improvements for free.
For each type of improvement, look on the utility’s website for a list of qualifying equipment and the specific rebate amount for each equipment model — plus a list of eligibility requirements. Once you’ve confirmed your eligibility and looked through your equipment options, it’s time to check the utility’s list of participating contractors. Because a piece of equipment is only as energy efficient as its installation, we recommend cross-referencing that list from your utility with local, vetted Pearl Network Contractors in the Green Door app to ensure the project is certifiable for quality and energy efficiency. Contact the contractor and let them know upfront that you plan to use a utility rebate.
Once they’ve completed your upgrade, it’s time to submit your rebate application. Your utility should specify whether you or your contractor are responsible for doing so. Then, wait with anticipation for your check! Hopefully it won’t take long to arrive, but for some utilities, a rebate check can take up to eight weeks to find its way to your mailbox.
From the Manufacturer
Manufacturers offer rebates on products large and small, from smart thermostats to HVAC systems, water heaters, and energy-efficient kitchen appliances. Go to the manufacturer’s website and search for “rebates” or look for menu options like “homeowner resources,” “buyer’s guide,” or simply “offers.” Manufacturers often change out their rebates every few months — for instance, offering rebates on air conditioners in summer, furnaces in winter. Make sure you check the purchase period and deadline for application and then act in time to use relevant rebates.
From the Inflation Reduction Act Rebate Programs
The IRA has allocated $9 billion for two energy-efficiency rebate programs, with a focus on empowering low- and mid-income families to make home improvements. The High Efficiency Electric Homes program will fund rebates for home electrification measures like heat pumps and induction stoves; the HOMES program will provide rebates to reward homeowners for reducing home energy consumption by 15% or more.
Rebates aren’t yet available under these programs, but the max dollar amounts are enough to generate excitement right here and now. Just to give you a taste:
You could save up to $8,000 for a heat pump for heating and cooling,
$1,750 for a heat pump water heater, and
$1,600 for air sealing and insulation.
The specific amounts will depend on your income, the resulting energy savings, and the actual cost of the project. We’ll keep you updated — look for more information from us in 2023 to help you find, apply for, and enjoy these rebates!
Remember, your state and city may offer energy-efficiency tax incentives on top of federal programs like the Inflation Reduction Act. A search on your city or state’s department of revenue or taxation can help you locate policy around credits for energy-efficient home improvements. Here, we’ll focus on the new IRA tax credits, which are federally funded and state administered.
Existing Federal Tax Credits
The IRA extended existing federal tax credits for energy-efficient home upgrades through December 31, 2022 (otherwise, they would have already expired). Currently, these credits range from $50–$500 for heating, cooling, and ventilation equipment; water heaters; insulation; roofing; and windows, doors, and skylights. They’re nice to have, especially if your HVAC or water heater is on its last legs and you need to make a quick purchase.
Energy Efficient Home Improvement Tax Credit
If your need isn’t urgent, we suggest you make a plan to take advantage of the as-yet-unreleased Energy Efficient Home Improvement Tax Credit.
The Inflation Reduction Act amended Section 25C of the federal tax code to instate this credit. It runs from 2023–2032 and will cover up to 30% of the cost of qualifying energy-efficient equipment, plus installation, with an annual limit of $1,200 per year or $2,000 if it covers the purchase of a heat pump. To qualify, your equipment must be manufactured by qualifying companies and meet specific energy-efficiency criteria, such as ENERGY STAR certification.
Residential Clean Energy Credit
The IRA also amended Section 25D of the tax code to revamp federal renewable energy tax credits. Previously, you could claim credits to cover 26% of the cost of solar energy systems, residential small wind turbines, geothermal heat pumps, fuel cells and biomass fuel stoves. Now you can qualify for the Residential Clean Energy Credit to cover 30% of the costs of home renewable energy systems that came online between January 1, 2022, and December 31, 2032. The credit amount will step down to 26% in 2033 and 22% in 2034. The credit then expires after 2034.
The Residential Clean Energy Credit applies to solar PV systems, residential small wind turbines, geothermal heat pumps, fuel cells, and residential battery storage with a capacity of at least three kilowatt hours. It no longer applies to biomass fuel stoves.
Starting in 2023, the federal government and participating state governments will be releasing more information on both of the updated tax incentives under the IRA. Sign up for our newsletter to ensure you don’t miss important updates.
Rebates and tax credits don’t change the fact that you only want to spend money on upgrades that will meaningfully increase your family’s comfort, reduce your utility bills, improve indoor air quality, and add to your home’s appraisal value at resale or refinance.
If you plan on waiting for IRA rebates and tax credits, we recommend you start planning now. Things are going to get busy once the Inflation Reduction Act savings kick in. By identifying your primary goals and assessing your home’s current performance, you can prioritize the upgrades that will do the most for you. Then, map out your improvements, and pick out your preferred appliances and equipment. Finally, browse the contractors in your area so you have a short list before the rush starts.
If that all seems a little overwhelming, don’t worry, you can do it all — with the added benefit of expert guidance — in our free Green Door app.
Once you’ve created your free account, you can update your home profile with your existing assets and receive customized Home Investment Plans with prioritized recommendations. Browse Pearl Certifiable ENERGY STAR appliances and fixtures at our partner site, Build with Ferguson. Then find and connect with local contractors well-versed in rebates and tax credits. (Don’t worry, we’ve vetted these contractors for you — only the ones who’ve demonstrated exceptional quality and service can join the Pearl Network.) Watch as the upgrades you make earn points toward a Silver, Gold, or Platinum Pearl Certification.
And when you’re ready to sell or refinance, request a Pearl Certification, which will demonstrate your home’s value to buyers, lenders, and appraisers. Because saving money upfront is good — and creating value that lasts is even better.
Pearl is transforming the housing market by scoring, verifying, and certifying the performance of homes across the country.
