Going green used to be a luxury. Now it can save you thousands. Here's how.
Americans will soon have the chance to fight climate change, lower their bills, make their homes more up-to-date and comfortable — all while saving money. That's the idea of Inflation Reduction Act tax credits and rebates.
The IRA means big-ticket items like electric and induction stoves, solar panels, insulation and heat pumps could soon be a lot cheaper for many households.
Climate-friendly purchases have a reputation as being a luxury — premium purchases that not everyone can afford. But that's changing, and now going green can also save you green in many cases.
These rebates and tax credits don't just save you money now, they can save you money in the long term too as your new, energy-efficient products lower your bills.
Here's what to know:
What is the Inflation Reduction Act and how can it save me money?
The landmark legislation was passed in August of 2022 and much of it kicked into gear in January. It includes a host of tax incentives and rebates to help Americans make their lives and homes more energy efficient, cheaper and comfortable.
But you'll need to do some research. That includes checking to see whether you're qualified for some of the incentives, timing your purchases strategically and following instructions on how to claim valuable tax credits and rebates. And don't forget to save your receipts!
To see which you qualify for, the non-profit Rewiring America has an easy-to-use website that will run the numbers for you.
How does climate change affect you?: Subscribe to the weekly Climate Point newsletter
READ MORE: Latest climate change news from USA TODAY
What's the catch?
There are several things to keep in mind:
Eligibility requirements: Some – though not all – of the incentives restrict who can use them, most on income and some on geography.
Benefits can be limited by how much you pay in taxes: Many of the incentives come as "non-refundable tax credits." That means you can't get more money back in the tax rebate than you actually owe in taxes.
The good news: You can potentially zero-out your federal tax bill and get a huge refund with non-refundable tax credits.
The bad news: People with lower incomes who pay less in taxes have less opportunity to take advantage of the credits. For example, a person who only pays $4,000 in income taxes can only use $4,000 in credits, which is less savings than a person who pays $7,000 in taxes has access to.
More: What is a federal tax credit? Get to know how it works, what makes it different from deductions
This kind of tax refund tends to favor middle- and higher-income families, said Sage Briscoe, federal senior policy manager for implementation with Rewiring America, an electrification non-profit.
On average, in 2020 Americans whose adjusted gross income was between $50,000 and $75,000 paid $4,567 in taxes, according to the IRS. Those who made between $75,000 and $100,000 paid $7,363.
A silver lining: For solar, battery storage and geothermal power, you can roll over any leftover portion of the credit to save money on your tax returns in later years until it's used up or the law changes – whichever comes first.
Big savings on Electric Vehicles
You can save thousands of dollars on a new EV, if you do your research.
But it's a confusing mess: It's so complicated that it is covered in a companion article to this one. But the huge savings are likely worth the trouble, if you're in the market for a new car.
READ MORE: EV buying guide
Get $150 off an energy audit
To figure out what makes the most sense for your home and situation, get an energy audit from a qualified provider. This is an assessment that tells you how much energy your home uses and suggests fixes to save energy and money.
The IRA offers a $150 tax credit per household for home-energy audits. There are no income restrictions but the household must owe at least $150 in taxes to take advantage of the credit.
Get 30% off on installing solar panels
The IRA includes a 30% tax credit on the purchase and installation of home solar panels, battery storage and geothermal systems. There are no income restrictions and no maximum amount that can be claimed.
The average rooftop solar installation costs about $20,000, so the tax credit would be around $6,000. Note that a family that pays $4,000 in federal taxes would only get a $4,000 tax credit but not the full $6,000.
Save up to $2,000 on a home heat pump, water heater
Heat pumps are heating/cooling systems that are much cheaper to run than air conditioning and a furnace but cost more upfront. Installing one can run between $600 to $20,000 depending on the type, region and house.
The IRA credit covers 30% of the purchase and installation cost, up to $2,000 for qualified heat pumps. There are no income restrictions but a household cannot get a tax refund for more than they owe in taxes that year.
It also covers new, ultra-efficient heat pump water heaters which use up to half the energy of conventional water heaters and can be 400% times more efficient, according to the Natural Resources Defense Council.
These are purchases you need to think about before your current water heater, furnace or air conditioner breaks. Some areas of the country are experiencing backlogs to buy and install new, energy efficient options, said Paul Hope, senior home & appliances writer with Consumer Reports.
That means if you're thinking of getting one, consider replacing your current heating and cooling system before it breaks, as it could take weeks or even months to actually get a heat pump and install it.
Upgrade your windows, doors and insulation
A well-insulated house with snugly fitting doors and windows goes a long way toward saving money on heating and cooling as well as making your home more comfortable.
The IRA offers an annual tax credit of up to $1200 for an electrification rebate or energy efficiency retrofits of up to $1,600, depending on income.
The tax credits can be used annually, "so you could replace a couple of windows one year and more the next," said Briscoe.The total rebate across all qualified electrification projects isn't capped until you hit $14,000.
Buy a new electric range or dryer
For appliances, the IRA provides a rebate, not a tax credit, making the process easier, though there are income limits.
Depending on your income and possibly what state you're in, you could receive a rebate of up to $840 for a new electric range, induction stoveor the new electric heat-pump clothes dryers that don't require venting.
These rebates are available to households that make up to 150% of their local area median income. Check the Rewiring America website to see if you qualify.
There's one caveat – the rebates aren't expected to arrive until the second half of the year as the details are still being worked out.
"Hopefully it will be as simple as, when you go to buy an electric or induction stove at Home Depot or Lowes, they will automatically give you $840 off," said Hope.
The tricky part is how income eligibility for the full $840 rebate will be determined. You'll need to check with your local appliance dealer to find out.
If your home's electrical wiring isn't up to the task of running a new electric range and/or clothes dryer, there are potential rebates of as much as $4,000 depending on income. There are also some tax credits available. These aren't expected to become available until late in 2023 and aren't retroactive, cautions Briscoe.
"If any contractor tells you that you can file for the rebate after the fact, that’s not true," she said.
How else can I save money?
There are many state and even county and city credits available. Rewiring America's website also includes those.
You can also check out the Database of State Incentives for Renewables and Efficiency for more information about possible local incentives.
This article originally appeared on USA TODAY: Save money on cars, solar, heating and more with IRA tax credits
Source: Read Full Article