By Daniel Bortz

In Features

Transform Your Home into an Energy-Efficient Haven

There has never been a better time to make your home more energy-efficient. The Inflation Reduction Act is a game changer for homeowners looking to make green home improvements and save money on utility bills. According to Mark Steber, chief tax officer at Jackson Hewitt, “It’s a monumental piece of tax legislation” packed with valuable tax credits and deductions.

However, the law has lots of details for homeowners to parse through, including what qualifies for a tax break. If you’re thinking of purchasing an energy-efficient appliance or system, here’s crucial information to maximize your savings under the Inflation Reduction Act along with tips on four common green home improvement projects.

Say Farewell to Lifetime Limits

Until the end of 2022, homeowners could claim a tax credit for only 10% of the cost for installing certain energy-efficient insulation, windows, doors, and other improvements, capped at a modest lifetime limit of $500. Fortunately, this has changed. The Inflation Reduction Act’s Energy Efficient Home Improvement Credit allows homeowners to claim a tax credit for up to 30% of the cost of qualifying home improvements, with an annual cap of $1,200. Remember, a credit directly reduces your tax bill.

There are annual dollar limits for specific items:

• $250 per exterior door (up to $500)
• $600 for windows and skylights, central air conditioners, electric panels, natural gas, propane or oil water heaters, and furnaces.

Additionally, there’s a more generous yearly credit limit of up to $2,000 for heat pump water heaters and heat pumps that meet specific efficiency standards.

Clean Energy Systems

Before the law was enacted, homeowners could take a tax credit of up to 26% of the cost of installing systems that utilize solar, wind, geothermal, biomass, or fuel cell power. This has been replaced by the Residential Clean Energy Credit, which enhances incentives for renewable-energy improvements, now offering a clean energy credit of up to 30% from 2022 through 2032.

The credit gradually decreases to 26% for installations in 2033 and 22% in 2034, expiring after 2034. While a 4% decrease might seem minimal, it translates to significant savings for large installations, such as solar systems.

Importantly, there is no dollar limit on the clean energy credit; therefore, whether you spend $20,000 or $100,000 on renewable energy systems, you’ll receive a 30% credit for the total expenditure.

Take Advantage of Rebates

The High-Efficiency Electric Home Rebate program adds nearly $9 billion in rebates for low- and middle-income families purchasing energy-efficient electric appliances. To qualify, your family’s total annual income must be less than 150% of your local median income. Homeowners may receive up to:

• $840 for a stove or heat-pump clothes dryer
• $1,750 for a heat pump water heater
• $8,000 for a heat pump for space heating or cooling

The program will launch soon, and managing the rebates will fall under each state’s energy office. Homeowners can also check for additional rebates on Energy Star-certified products.

Why You Should Get a Home Energy Audit

A home energy audit assesses your home’s current energy consumption and identifies opportunities for efficiency improvements. “Benefits include reduced energy costs, improved comfort, decreased environmental impact and increased longevity of appliances,” notes a sustainability manager from Washington DC. Furthermore, homeowners can claim a $150 tax credit for completing an audit, often averaging around $431.

Four Green Projects that Pay Off

1. Energy-Efficient Windows

• Cost: $325 to $2,000 per window; installation adds $300 to $1,000 per window.
• Tax Credit: Up to $600 annually for exterior windows and skylights.

Installing energy-efficient windows can significantly impact your energy bills, as up to 30% of heating and cooling energy use is linked to windows. Choose Energy Star-certified windows for the best results.

2. Heat-Pump Water Heaters

• Cost: $1,500 to $3,000
• Tax Credit: Up to $2,000 annually for qualifying models.

Families can save significantly, averaging $550 annually on energy bills with Energy Star-certified models. However, size is crucial; a 50-gallon heater generally suffices for a family of four, saving thousands compared to larger models.

3. Attic Insulation

• Cost: $1,500 to $3,500 for installation.
• Tax Credit: Up to $1,200 annually.

Insulating your attic is a smart investment, preventing heat loss and helping maintain comfortable indoor temperatures. Always seal your attic floor before adding insulation for optimal results.

4. Solar Panels

• Cost: Average $29,500 for a 10-kilowatt system.
• Tax Credit: 30% of installed cost.

Although solar panels can be expensive initially, they often equate to substantial long-term savings. Many homeowners save between $20,000 and $90,000 over their solar panel system’s life.

In conclusion, now is an opportune moment to explore energy-efficient upgrades for your home. By leveraging available tax credits and rebates, homeowners can significantly offset costs while enhancing their home’s energy efficiency.