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Inflation Reduction Act 101: What Homeowners Need to Know

December 1, 2022

In August, the U.S. Government passed the Inflation Reduction Act (IRA), a comprehensive energy policy bill that provides a record $370 billion for climate and energy initiatives. For homeowners, the IRA comes with incentives to install environmentally friendly equipment including HVAC products.

So, how does the IRA impact you?

We asked Matthew Thornblad, Senior Public Policy and Communications Director at Rheem, and Karen Meyers, Vice President of Government Affairs, what homeowners need to know about the IRA and how it might influence your options when replacing and buying new HVAC equipment. Here’s what they said.

In layman’s terms, what does the IRA do?

MT: The IRA is a comprehensive bill with a lot of elements, but a big part of it is that it’s going to empower consumers to make decisions around how they want to improve the energy efficiency of their home. For customers who may not have had high-efficiency equipment on their radar—or they wanted to install it, but it was too expensive—the IRA will help reduce the upfront cost. And over the life of using highly efficient equipment, you’re also going to save money on your utility bill with products that work better for the environment.

KM: Overall, we have never seen the federal government provide this much money and incentives into our industry. It applies primarily to heat pumps, but there are incentives for other high-efficiency products. The IRA is a way to get leading technology and high-efficiency products into homes.

How does the IRA incentivize homeowners to purchase highly efficient equipment?

KM: There are two main pillars that empower homeowners to install high efficiency equipment. First, the government will be providing federal Tax Credits, and secondly, there will be a Rebate Program. The two programs—and in some cases, the qualifying equipment—may be different.

Federal tax credits are in effect for the next 10 years, until December 31, 2031, and apply to the installation of highly efficient products, including HVAC equipment. Homeowners can earn up to $2,000, or 30% of the cost of the product and installation, for heat pumps; $600 for highly efficient furnaces; and $600 for qualifying air conditioners. There is a yearly cap on the tax credits, but it resets every year. So, you can replace one system, such as a heat pump, one year and other equipment the next.

The Rebate Program is available primarily to low- and moderate-income households and will be administered by state energy offices with a limited amount of funding, therefore, once the funds are consumed, the rebate program will end.  The low- and moderate-income range will be different state to state because it’s based on the median regional income. The program will also vary by state because states apply for the funds, and the state energy offices write their own program rules. We’re still waiting on a lot of those rules to be finalized while working closely with the federal and state agencies providing guidance. So, there is a lot we don’t know yet on the details of the Rebate Program, and once we have more information, we’ll share that to keep contractors and homeowners up to date.

What products are eligible for tax credits?

MT: There is a separate process whereby a nongovernment organization (NGO) sets the criteria for eligible products. In this case, the NGO is the Consortium for Energy Efficiency, also known as CEE. Qualifying products must meet the CEE criteria and include high-efficiency heat pumps, central air conditioners and condensing residential furnaces.. 

KM: What products qualify will primarily be based on efficiency level. Some of those efficiency levels may even change by geographic location. It’s also important to note that efficiency minimum levels will change over time, so what qualifies in 2023 may not qualify in future years as standards are updated to reflect changes in equipment performance.

What products are eligible for the rebate program?

MT: The Department of Energy will set up a process to launch the Rebate Program in the second half of 2023. Eligible products must meet ENERGY STAR criteria. We also know the program is designed to provide rebates to homeowners who electrify heating and cooling systems, such as replacing a central air conditioner and gas furnace with a heat pump. In addition to rebates for qualifying heat pump systems, states can also provide rebates to consumers for electric load service and wiring upgrades.

Where can I go for more information?

Rheem will be updating IRA information as it becomes available here. You can also stay up to date on the latest industry changes at rheem.com/hvacknowzone.

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