The Inflation Reduction Act, set to become law this week, stands to pump billions into the residential remodeling and repair market beginning Jan. 1, 2023 continuing through the decade ahead.
While details of the “climate change” legislation have not been finalized, broad strokes have emerged. Tax credits for solar and geothermal residential projects will be restored. So too will credits for energy efficient windows, doors, and heat HVAC equipment, particularly heat-pumps. Significantly, the cap on credits for these improvements will be boosted to $1,200 annually or $12,000 per household over 10 years.
There will also be funds for training contractors on how to conduct home energy audits and how to install those improvements. Indeed, much of the impact on residential construction will come in the form of tax credits.
Significantly, the $4.3 billion earmarked for energy retrofits in homes will take the form of cash rebates distributed by states. Rebates are seen as more directly impacting improvement activity as opposed to tax credits.
Below is information from the Bipartisan Policy Center, a think tank founded by Bob Dole, Tom Daschle, George Mitchell and Howard Baker. It summarizes some of the residential investments likely to be included in the new law.
Residential Tax Credits
- Credit for Residential Clean Energy—Extends credit through 2034 for residential solar, wind, geothermal, and biomass fuel. Maintains the previous credit rate but adjusts the project dates. Applies a 30 percent credit for projects started between 2022 and 2032. Credit decreases to 26 percent for projects started in 2033 and 22 percent for projects started in 2034.
- Expands eligibility to battery storage technology.
- Credit for Energy Efficiency Home Improvements—Extends credit for energy efficiency home improvements through 2032. Increases credit from 10 percent to 30 percent.
- Replaces lifetime cap on credits with a $1,200 annual credit limit, including $600 for windows and $500 for doors.
- Increases limit to $2,000 for heat pumps and biomass stoves.
- Removes eligibility on roofs.
- Updates language to reflect advances in energy efficiency.
- Expands credit to cover the cost of home energy audits up to $150 and electrical panel upgrades up to $600.
Home Energy Performance-Based Whole House Rebates
This program offers $4.28 billion through 2031 to state energy offices to provide rebates to homeowners for energy-saving retrofits, including heat pump water heaters, heat pump heating and cooling, improved electrical panels or wiring, and home insulation or sealant.
- Eligible recipients must fall below 150 percent of the area median income.
Qualified Remodeler will provide more specifics when the law is enacted. QR