The federal Inflation Reduction Act of 2022 included the most comprehensive suite of legislation ever enacted to rapidly reduce greenhouse gas emissions that are warming the planet at an alarming rate. It provides an estimated $369 billion in funds targeted at building a clean electric grid, commercializing new technologies, improving building efficiency, and kickstarting the nation’s transition to electric vehicles.
The Biden administration has elected in the IRA to fight climate change primarily by incentive-based programs, giving both families and businesses the flexibility to invest in clean energy solutions that have the greatest impact for them. However, these incentives are effective only to the extent that people and institutions take full advantage of them.
Included in this package is more than $8 billion for individuals. This is a great opportunity for all of us to fight climate change and get reimbursed while doing so. Depending on your income level, incentives are in the form of federal tax credits and/or cash rebates. Additional New York State incentives are available in some categories, as outlined on the HeatSmart Finger Lakes website.
Home energy efficiency upgrades
Residential usage represents about 18 percent of U.S. energy consumption, which is why the IRA contains significant incentives for lowering that number. Many households (including renters for some items) should look at this list of improvements carefully, since they can claim federal tax credits as early as on their 2023 income taxes, and for all years going forward until 2032. Collectively, they represent a variety of appliances and products intended to make residences more energy efficient, thereby lowering utility bills and decreasing emissions. Credits or rebates are available for improving weather resilience (windows, doors, insulation, energy audits) as well as upgrading to electrically powered appliances that reduce energy consumption, such as heat pump systems for heating/cooling, hot water heating, and clothes drying.
The amount and type of incentives for these energy efficiency upgrades vary according to household income levels. Readers are encouraged to access the Rewiring America IRA Calculator to learn about what they are personally eligible for.
■ Point-of-sale rebates for low/moderate income levels. Generous cash-back incentives are available to both low- and moderate-income households. Rebates can be as high as $14,000. This program has the potential to be one of the most effective for helping homeowners in our region, since it covers income levels up to 150 percent of area median income. For example, a two-person household can earn up to $107,000 and still qualify for the program; the limit is higher for larger families. New York is developing the process for administering the funds; rebates are expected to be in place by early 2024.
■ Tax credits for all levels. Regardless of income level, any homeowner or renter is eligible for a federal tax credit equal to 30 percent of the purchase price, capped at a maximum level that varies by the specific item. Total annual credits can be as much as $1,200, plus an additional $2,000 when purchasing a heat pump or heat pump water heater. Credits renew each year, beginning with the current tax year.
Electric vehicle purchase
At 29 percent of U.S. carbon emissions, transportation in all its forms is an even greater source of carbon dioxide pollution than housing. Accordingly, the IRA provides tax credits to consumers who purchase either a new or used plug-in hybrid, battery-powered electric, or fuel-cell vehicle. Credits of up to $7,500 for a new vehicle and $4,000 for a pre-owned model can be claimed on your 2023 federal income taxes. Qualifying restrictions apply for income levels, final assembly location, and where critical materials are sourced. Visit the federal fuel-economy website to determine what you can expect your credit to be, depending on the option you choose.
Although vehicle choices are somewhat limited this year, that list will grow annually beginning with the 2024 models. The tax-incentive program is expected to be replaced in 2024 by point-of-sale cash rebates, which may bring more buyers into the EV market.
Depending on a variety of factors unique to specific regions, it is now possible to generate electric power from solar at a lower operating cost than from any form of fossil fuels. As more utilities convert to both solar and wind, consumers may begin to see less-volatile electric bills. But homeowners who choose to install their own rooftop solar may produce electricity at an even lower cost per kilowatt-hour than what is available from utilities.
The IRA aims to induce more homeowners to take advantage of such a non-fossil fuel energy solution by extending for the next 10 years an incentive program to significantly lower the cost of the initial installation. A federal tax credit of 30 percent of the total project costs (labor and equipment), including the cost of battery storage, can be taken for multiple years until the full 30 percent is recovered. This program is available to all income levels. An additional benefit to New Yorkers is a 25 percent credit toward state taxes, up to a maximum of $5,000.
Geothermal heating and cooling
Another home energy investment that some may consider is a geothermal or ground-based heat pump for heating and cooling the house. Using a heat exchange system between your home and the earth, this is a major installation project that can cost $30,000 or more. But the long-term savings can be worth it, based on geothermal system efficiencies that can exceed other solutions. Federal and New York tax credits are identical to those of a rooftop solar installation.
To learn more
Citizens’ Climate Lobby volunteers are convening throughout the year a series of in-person and/or Zoom events that explain these incentives and provide the opportunity to ask additional questions. The next event is scheduled for 6:30 p.m. on Aug. 8 at the Mendon Public Library. The CCL calendar provides details for this event and for others that will follow.
Glenn Alexander is with Citizens’ Climate Lobby. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected].