The Inflation Reduction Act covers climate, energy, healthcare, and tax law that increases IRS funding, and changes some tax policy and tax credits.
We are no healthcare or tax law experts, but we have interest in real estate and how it pertains to every home owner.
Tucked within the Inflation Reduction Act is a hundreds of pages of this language that pertains to homeowners and improving their house ( SEC. 13302. RESIDENTIAL CLEAN ENERGY CREDIT ).
Here is what is means for the homeowner and in laymen’s terms. Congress is trying to encourage the use of renewable energy sources, the government will reward you with a tax credit if you install certain energy-efficient equipment in your home. You’ll save 30% on qualifying new systems that use solar, wind, geothermal, biomass or fuel cell power to produce electricity, heat water or regulate the temperature in your home. Here is the downside, the credit for fuel cell equipment is limited to $500 for each one-half kilowatt of capacity. (Note that, starting in 2023, the credit won’t apply to biomass systems, but it will apply to battery storage technology.)
For the 2022 tax year, homeowners going green can also shave up to $500 off their tax bill with another credit by installing energy-efficient insulation, doors, roofing, heating and air-conditioning systems, wood stoves, water heaters, or the like. The credit is worth up to $200 for new energy-efficient windows. The $500 general cap and the $200 maximum for windows are lifetime credit limits (e.g., credits taken in previous years count towards the limit). There are also other individual credit limits for advanced main air circulating fans ($50), certain furnaces and boilers ($150), and energy-efficient building property ($300).
Equipment Tax Credits for Primary Residences
The Non-Business Energy Property Tax Credits outlined below apply retroactively through 12/31/2022.
Updates will be applied for 2023 and remain effective through 12/31/2032.
Air Source Heat Pumps
Heat pumps that are ENERGY STAR certified meet the requirements for this tax credit.
Tax Credit Amount: $300
Requirements
Split Systems:
HSPF >= 8.5
EER >= 12.5
SEER >= 15
Package systems:
HSPF >= 8
EER >= 12
SEER >= 14
Central Air Conditioning (CAC)
Air conditioners recognized as ENERGY STAR Most Efficient meet the requirements for this tax credit. To verify tax credit eligibility, ask your HVAC contractor to provide the Manufacturer Certification Statement for the equipment you plan to purchase.
Tax Credit Amount: $300
Requirements
Split Systems:
SEER>= 16
EER >= 13
Package systems:
SEER >= 14
EER >= 12
Gas, Propane, or Oil Hot Water Boiler
Gas powered boilers that are recognized as ENERGY STAR Most Efficient meet the requirements of this tax credit.
Tax Credit Amount: $150
Requirements
AFUE >= 95
Tax Credit includes installation costs.
Gas, Propane or Oil Furnaces and Fans
Gas furnaces that are ENERGY STAR certified (except those for U.S. South only) meet the requirements for the furnace tax credit. Gas and oil furnaces that have earned the ENERGY STAR include fans that meet the requirements of the fan tax credit.
Tax Credit Amount: $150
Requirements
AFUE >= 95
Water Heaters (non-solar)
Gas, Oil, Propane Water Heater
Certain ENERGY STAR certified gas water heaters meet the requirements for this tax credit. Water heaters account for 12% of the energy consumed in your home.
Tax Credit Amount: $300
Requirements
Uniform Energy Factor (UEF) >= 0.82 OR a thermal efficiency of at least 90%.
Electric Heat Pump Water Heater
Most ENERGY STAR certified water heaters meet the requirements of this tax credit. Water heaters account for 12% of the energy consumed in your home.
Tax Credit Amount: $300
Requirements
Uniform Energy Factor (UEF) >= 2.2
Advanced Main Air Circulating Fan
An Advanced Main Air Circulating Fan is an efficient fan, or blower motor which blows the air that your furnace heats up through the duct system.
Tax Credit Amount: $50
Requirements
Must use no more than 2% of the furnace’s total energy.
Qualified Energy Efficiency Improvements:
Please note: Tax credit DOES NOT INCLUDE INSTALLATION FOR THE FOLLOWING PRODUCTS.
Insulation
Adding adequate insulation is one of the most cost-effective home improvements that you can do.
Tax Credit Amount: 10% of the cost, up to $500 (NOT INCLUDING INSTALLATION)
Requirements
Typical bulk insulation products can qualify, such as batts, rolls, blow-in fibers, rigid boards, expanding spray, and pour-in-place.
Products that air seal (reduce air leaks) can also qualify, as long as they come with a Manufacturers Certification Statement, including:
- Weather stripping
- Spray foam in a can, designed to air seal
- Caulk designed to air seal
- House wrap
NOTE: Tax Credit does NOT include installation costs.
Roofs (Metal & Asphalt)
This tax credit is for ENERGY STAR certified metal and asphalt roofs with pigmented coatings or cooling granules designed to reduce heat gain. Certified roof products reflect more of the sun’s rays, which can lower roof surface temperature by up to 100F, decreasing the amount of heat transferred into your home.
Tax Credit Amount: 10% of the cost, up to $500 (NOT INCLUDING INSTALLATION)
Requirements
“Metal roofs with appropriate pigmented coatings” and “asphalt roofs with appropriate cooling granules” that also meet ENERGY STAR requirements.
NOTE: Tax Credit does NOT include installation costs.
Windows, Doors & Skylights
Windows, doors and skylights that earn the ENERGY STAR save energy, improve comfort and help protect the environment.
Tax Credit Amount: 10% of the cost, up to $500, but windows are capped at $200. (NOT INCLUDING INSTALLATION)
Requirements
Must be ENERGY STAR certified.
You do not have to replace all the windows/doors/skylights in your home to qualify. And it doesn’t need to be a replacement either – installing a new window where there wasn’t one previously (like in an addition) qualifies.
Tax credit does not include installation costs.
These tax credit items must be placed in service in an existing home which is your principal residence by December 31, 2022. New construction and rentals do not apply.
Work with Apogee Properties
Apogee Properties is Houston’s Premier Property Management Company. We work and live in Houston, and our property managers are local. We’ve been in business for more than a decade, providing comprehensive property management services in the Houston region, ranging from a studio condo to a multi-family million-dollar estate. Contact us to learn more about our property management services, and what we can do for you and your rental property.
