The Inflation Reduction Act of 2022 authorizes federal tax credits and rebates for qualifying energy-efficient improvements to homes and businesses. The Act encourages owners to save energy, reduce harmful environmental emissions and opt for appliances and procedures that promote clean energy.
The IRA allows annual tax credits of $3,200 for qualifying improvements and appliances to homeowners of any income bracket through tax year 2032. There is no lifetime limit on credits. The Act also funds states to offer rebate programs for residential energy-efficient improvements for low- and moderate-income households. Each state sets its own income thresholds and the rebate amounts for qualifying appliances and improvements. In addition, local governments and utilities sponsor rebate programs that promote energy efficiency for residents.
HVAC Federal Tax Credits
The IRA continues many tax credits and rebates for energy efficiency enacted by laws beginning in 2005. The Act focuses on creating jobs, protecting the environment by using clean energy sources and increasing the energy efficiency of homes and businesses.
You can claim tax credits for a portion of expenses for qualifying energy improvements to your home. Most credits are for principal residences. Credits fall into three categories: upgrading to heat pump technology for credits up to $2,000, making energy-efficient home improvements for credits up to $1,200, and installing clean energy equipment.
You can combine improvements from the three categories to reach the annual $3,200 allowance. However, tax credits for geothermal heat pump installations are independent of the $3,200 limit.
Heat Pump Tax Credits
Homeowners can claim up to 30% of costs up to $2,000 for qualifying ductless or ducted air-source heat pumps. Different criteria apply to the northern and southern zones of the U.S. Allegiance Heating & Cooling is located in Illinois, which lies in the northern zone. Ducted heat pumps must be designated Energy Star cold-climate with an EER2 of at least 10. The Energy Efficiency Ratio (EER) defines the ratio of cooling power to the amount of energy used to operate. The higher the number, the more efficient the system.
Ductless heat pumps must be rated Energy Star cold-climate with a SEER2 value of at least 16, an EER2 value of at least 9 and an HSPF2 value of at least 9.5. The Seasonal Energy Efficiency Ratio (SEER) measures the amount of heat removed during a cooling season divided by the energy used. The Heating Season Performance Factor (HSPF) measures the amount of heat provided during a heating season divided by the amount of energy used to produce the heat.
Several manufacturers have developed heat pumps that function efficiently in temperatures as low as minus 20 degrees F. These cold-climate heat pumps will be available in 2025.
Energy-Efficient Home Improvements
Energy-efficient home improvements include upgrading insulation, installing qualifying central air conditioners, boilers and furnaces, upgrading electrical panels and installing qualifying windows, skylights and doors. You can claim 30% of improvements up to $1,200. These improvements can reduce the load on HVAC equipment, which saves energy and can lower your utility bills. By reducing the load, you may be able to install a smaller heating and cooling system, which can lower the cost of purchasing a new system.
Allowable credits for HVAC equipment include 30% of costs up to $600 for new central air conditioners, boilers or furnaces. Equipment must be Energy Star-certified and meet specific efficiency ratings.
Installing Clean Energy Equipment
Geothermal heat pumps fall in the clean energy equipment category. Homeowners can claim 30% of the cost of installing a geothermal system. Existing homes, new construction for principal homes and second homes qualify. The equipment must be Energy Star-certified. Geothermal heat pump tax credits are separate from the $3,200 annual threshold.
State of Illinois Rebates
The IRA authorizes allocating grants to states for two rebate programs: Home Efficiency Rebates and Home Electrification and Appliance Rebates. Illinois has been approved for both programs. The Illinois Environmental Protection Agency oversees the programs, which will allocate 100% of the funds for low- and moderate-income households based on the state’s definition of its median income. The latest U.S. Census data shows the median income for an Illinois household to be slightly about $80,000.
The program funds authorized home improvements or appliances that reduce your household energy use by at least 20%. You must apply through the Illinois EPA and have your project approved.
Home Efficiency Rebates can be as much as $8,000. Projects must meet specific requirements.
Projects may include:
- Insulating and air sealing
- Completing a home energy assessment
- Upgrading windows and doors
- Improving whole-home ventilation
- Installing a heat pump
- Installing a smart thermostat
- Sealing HVAC ducts
Home Electrification Rebates are capped at $14,000 per household. Projects must meet specific requirements. Projects may include upgrading electrical panels and wiring or installing a heat pump or a qualifying air conditioner, furnace or boiler.
Other Credits and Rebates
Many local energy suppliers, municipalities and counties offer tax credits, rebates and incentives for energy efficiency. Some residential energy efficiency programs offer rebates and discounts for qualifying upgrades and improvements. Several offer free or discounted products and services that save energy. Check with your energy provider, municipality or local government to find out what is available in your area.
Call Allegiance Heating & Cooling for All Your HVAC Needs
Allegiance Heating & Cooling is a full-service HVAC contractor, serving Mokena, Illinois, and nearby communities. We are a Trane Comfort Specialist, offering technical expertise and excellent customer service for residential and commercial clients. We work with all brands of HVAC equipment, providing new installations, upgrades, maintenance and repair services for heat pumps, ducted systems and ductless mini-split heating and air conditioning systems. We can help you select energy-efficient HVAC equipment to help you maximize eligible tax credits and rebates in 2025,including smart thermostats, heat pumps, energy-saving furnaces and whole-home ventilation systems.
We also offer duct cleaning, annual maintenance plans and indoor air quality products that keep the indoor air fresh. In addition, we provide home water filtration systems.
For more information about energy-efficient HVAC equipment, call the Mokena HVAC experts at Allegiance Heating & Cooling.
