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2023 Heat Pump Tax Credit

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  • Date:2022/12/07

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2022 Inflation Reduction Act

The 2022 Inflation Reduction Act was passed by the US Senate and House of Representatives, involving about US $369 billion in energy security and climate transition investment. According to the US Capitol Hill, on August 7 local time, the US Senate passed the Investment Reduction Act of 2022 with a result of "51 in favor and 50 against", including an energy security and climate transition investment plan of about 369 billion US dollars. On August 12, the bill was passed by the US House of Representatives again, and will take effect after the signature of the US President.

 

This bill is the largest climate investment in the history of the United States, covering all segments of the new energy industry. This bill again emphasizes the goal of reducing carbon emissions by 40% by 2030, which involves five aspects: reducing consumer energy costs, ensuring energy security in the United States, helping to decarbonize in various fields, increasing investment in vulnerable communities, and supporting the transformation of remote areas. It also provides strong policy and tax subsidy support for new energy vehicles, photovoltaic, wind power, energy storage, hydrogen energy and other clean energy related fields. Among them, important measures include giving a tax credit of 7500/4000 dollars to new/used electric car buyers, a 10-year tax credit for household photovoltaic/heat pump, and a targeted subsidy/loan of 30 billion dollars to public utility companies for investment in clean energy projects.

 

Under the policy support, the transformation of new energy in the United States may exceed expectations, and the domestic industrial chain is expected to benefit. Since this year, under the influence of adverse factors such as the continuous rise of key raw materials and the aggravation of supply chain disturbance, the new energy installation in the United States has been under great pressure. According to EIA data, the new wind power/photovoltaic/electrochemical energy storage installations in the United States from January to May 2022 were 5.2/6.5/1.1GW, respectively, - 10%/+7%/+17% year-on-year, and the overall installation progress was slow. With the gradual implementation of the subsequent climate investment act and other supporting policies, the construction of new energy projects in the United States is expected to accelerate significantly. Although the bill passed by the US Senate focuses on and provides targeted policy support for local manufacturing capacity, considering that the construction of local capacity in the US requires a certain construction cycle, and the domestic new energy industry chain has obvious advantages in terms of both manufacturing cost and maturity in the short term, we expect that it will be difficult for the US new energy industry to "decouple" from the domestic in the short term, Domestic manufacturers are still expected to fully benefit from the accelerated transformation of new energy in the United States.

 

Heat pump provisions in the Inflation Reduction Act

 

If you choose to install a heat pump, you will be eligible for a federal tax credit for models that meet the highest energy efficiency rating of the Energy Efficiency Alliance (CEE).

This tax credit applies to 30% of the total cost you pay for the heat pump, including labor costs, up to $2000; It will be available by the end of 2032.

In addition to tax incentives, you are also eligible for heat pump water heaters up to $1750 and space heating and cooling heat pumps up to $8000. Both incentives will be in the form of discounts on any heat pump model managed by the state. In this case, there are no federal efficiency requirements guidelines that exceed the minimum standards required by the Department of Energy. But according to the way similar projects have operated in the past, states may implement their own requirements, said Lauren Urbanek, senior energy policy advocate of the Natural Resources Conservation Commission. These rebate incentives are part of a $4.5 billion federal funding program that will continue through September 2031.

 

Heat pump rebate

When does the heat pump rebate start?

The US Department of Energy said in November 2022 that it would provide funds to each state from the spring of 2023. Rebates will be available to the public later this year.

If you can't wait until then, you can now provide a $300 tax credit for heat pumps that meet CEE's top energy efficiency standards.

 

How to apply for heat pump tax credit or tax refund.

For tax credits, you can claim them on your federal income tax return. We are not sure which form you need to complete, but in previous years IRS Form 5695 was used for similar residential energy credit plans. A good tax filer will know what to use, and programs like TurboTax will usually guide you in a way that makes it easy for you to apply for relevant tax credits.

The tax refund plan varies from state to state and has not yet been determined. Urbanek said that they can be implemented through public utility companies or state-owned institutions. She also pointed out that one line in the bill seemed to encourage the Department of Energy and the state plan to work together so that the point of sale could receive rebates - which would be included in consumers' out of pocket expenses. "It's much fairer to lower the price from the beginning than tax credits and the like. In tax credits, you have to wait [maybe] more than one year to get tax credits, or even [typical] tax rebate plans, where you have to mail and wait for months," Urbanek said.

 

How to apply for heat pump tax credit or tax refund.

For tax credits, you can claim them on your federal income tax return. We are not sure which form you need to complete, but in previous years IRS Form 5695 was used for similar residential energy credit plans. A good tax filer will know what to use, and programs like TurboTax will usually guide you in a way that makes it easy for you to apply for relevant tax credits.

The tax refund plan varies from state to state and has not yet been determined. Urbanek said that they can be implemented through public utility companies or state-owned institutions. She also pointed out that one line in the bill seemed to encourage the Department of Energy and the state plan to work together so that the point of sale could receive rebates - which would be included in consumers' out of pocket expenses. "It's much fairer to lower the price from the beginning than tax credits and the like. In tax credits, you have to wait [maybe] more than one year to get tax credits, or even [typical] tax rebate plans, where you have to mail and wait for months," Urbanek said.

 

Tax credit for heat pump installation

You can also claim a total tax credit of up to $1200 per year for a wide range of expenses related to certain energy efficiency upgrades, including heat pumps. These include but are not limited to:

$600 for air sealing materials or systems to improve your home's overall energy efficiency

The cost of a home energy audit is $150, which can show you how to improve overall energy efficiency

$600 to upgrade your power supply if it is necessary for efficiency projects - for example, to power an electric heat pump when you used natural gas to heat your home

Low and middle income families can also enjoy the national management discount for energy efficiency and electrification upgrading related to the installation of heat pumps. Who is eligible and how many parameters will be determined by the state based on your household income and the median household income in your state. This includes:

$1600 for insulation, air sealing and ventilation

$4000 for upgrading panels and services

Wire $2500

 

Who is eligible for the heat pump tax credit or refund

Any taxpayer is eligible for a federal tax credit.

For the tax credit program, the new incentives will apply to equipment installed on or after January 1, 2023. (For heat pumps installed during 2022, heat pumps that meet the highest energy efficiency in Central and Eastern Europe can enjoy a small tax credit of up to $300.)

As for rebate plans, Urbanek said that it would be "surprising" if they could eventually be applied retroactively. Rebates depend on income. Specifically:

If your household income is less than 80% of the median household income in your state, you are eligible for 100% of the available tax refund. Therefore, if you spend $10000 on heat pumps and heat pump water heaters, you can get a refund of $9750, depending on your state's tax refund plan.

If your household income is 80% to 150% of the median income in your state, you are eligible for 50% of the available rebate. Therefore, you can get a refund of $4875 for heat pumps and heat pump water heaters worth $10000, depending on the circumstances.

If your family income exceeds 150% of the median income in your state, you are not eligible for these refunds.

 

    Other benefits of tax relief policy

    The tax relief policy will strongly promote the photovoltaic investment in the United States.

    The tax credit policy (ITC) is an important policy to promote the development of photovoltaic in the United States. The 2022 Inflation Reduction Act has modified the term and proportion of ITC tax credits in photovoltaic, increased the scale of wind power photovoltaic tax incentives in low-income communities, and increased tax credits at the manufacturing end. These measures are expected to further boost the demand for photovoltaic installations in the United States.

    New loan and subsidy policy support to rapidly increase PV penetration

    In addition to the above tax incentives, the 2022 Inflation Reduction Act plans to encourage the installation of roof photovoltaic, heat pumps, electric HVAC (air conditioning systems), water heaters, etc. by providing a 10-year consumer tax credit. The subsidies are applicable to entities and individual consumers using photovoltaic technology, and will open space for small and medium-sized photovoltaic and energy storage markets.

     

    Reduce energy use cost through solar energy incentive plan

    With the "carbon neutral" goal of the United States and the continuous promotion of energy transformation, the relevant photovoltaic incentive plan in the 2022 Inflation Reduction Act is expected to improve the utilization rate of photovoltaic energy and reduce the cost of energy use.

    In addition to incentives for photovoltaic manufacturing, the bill will also reduce the electricity bills of households and states by promoting the construction of community photovoltaic projects, which is expected to save 10% of the electricity bills for 4.5 million households every year. In the solar energy incentive plan, the bill will provide 10 million dollars to increase the solar energy labor posts in the United States, and the development of photovoltaic is expected to accelerate.

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